The Bank of Canada has kept its key interest rate unchanged at 2.75%. This decision comes after it reduced rates from a high of 5% between June of last year and March of this year. In the larger economic picture, the US Federal Reserve has also held its interest rates steady for five meetings in a row. As a result, the US Dollar remains strong in the foreign exchange market.

Inflation and Employment Indicators

The Federal Open Market Committee remarked that inflation is “somewhat elevated,” while the unemployment rate is “low,” highlighting a strong job market. At the same time, the EUR/USD currency pair dropped to new lows below the 1.1450 level, indicating shifts in economic sentiment. Gold prices fell to around $3,270 following the Federal Reserve’s decision. Chair Jerome Powell’s hawkish comments further bolstered the US Dollar’s position in the market. For trading in 2025, brokers are vying to offer attractive conditions for trading major pairs like EUR/USD. They are providing competitive spreads, fast execution, and powerful platforms for effective trading.

Market Strategy and Positioning

With the Federal Reserve’s steady approach, we should focus on trades that capitalize on a strong US dollar in the upcoming weeks. The Fed shows no urgency to cut rates, especially with the current US Core PCE inflation at 3.1% and the unemployment rate at a low 3.8%. This difference in policy between the US and other central banks is our main indicator. We anticipate further declines for the EUR/USD, which has already fallen below the 1.1450 support level. We can use put options to prepare for a drop toward the 1.1300 area, as recent manufacturing PMI data from Germany and France suggests ongoing economic weakness. Selling into rallies in this pair is our preferred strategy. For the Canadian dollar, the Bank of Canada’s pause at 2.75% follows a significant cutting cycle that started last year. While this pause may offer temporary support, the large interest rate gap still heavily favors the US dollar. We expect the USD/CAD to remain strong, especially with buyers stepping in during price dips. The drop in gold prices to the $3,270 area is directly linked to high US interest rates and dollar strength, which make non-yielding assets less appealing. We should view any increase in gold prices as a chance to sell, as the overall environment remains bearish for the metal. This scenario mirrors the pressure gold faced during the Fed’s aggressive rate hikes in 2022. We can also use interest rate futures to trade the Fed’s “higher for longer” strategy. The market is currently anticipating the first potential rate cut for early 2026, and we can prepare for that timeline to be delayed further. Selling futures contracts that benefit from steady rates aligns with the Fed’s current message. In this volatile market, we should take advantage of the competitive broker landscape. Securing low transaction costs and tight spreads on major pairs like EUR/USD is vital for maximizing returns. Fast and reliable execution platforms are essential for effectively managing our positions in these rapidly changing markets. Create your live VT Markets account and start trading now.

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