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Commerce Secretary nominee Lutnick:

• If Canada addresses the flow of fentanyl into the US, there will be no tariffs.

There you have it.

THe USDCAD has reached new lows to 1.4432 and moves away from swing area on the topside between 1.4448 and 1.4466. On the downside the 100 and 200-hour moving averages comes in at 1.4380 and 1.4385 respectively.

This article was written by Greg Michalowski at www.forexlive.com.

The major European stock indices are mostly closing higher. The excepttion in the France CAC which fell modestly in trading today.

The German Dax closed a a new all-time record and made a new intraday high at 21671.59.. For the new year, the index is up 8.61%

The UK FTSE 100 closed just below its record high close at 8565. The close today was at 8557.82. For the year, the index is up 4.71%

The final numbers for the day are showing:

• German DAX, +192.48 points or 0.90% at 21623.07
• France’s CAC, -24.89 points or -0.32% at 7872.49
• UK’s FTSE 100 +23.94 points or 0.28% at 8557.82
• Spain’s Ibex +132.30 points or 1.09% at 12286.51
• Italy’s FTSE MIB +224.61 points or 0.62% at 36371.66.

This article was written by Greg Michalowski at www.forexlive.com.

• Lutnick says he prefers “across-the-board” applied to countries rather than aiming at specific sectors or products
• “We can use tariffs to create reciprocity, fairness and respect,” he said

This article was written by Adam Button at www.forexlive.com.

Bank of Canada Governor Tiff Macklem is set to speak momentarily but the BOC has already published his opening statement.

It highlights a stance that’s more-neutral than the market anticipated.

“Absent the threat of tariffs, the risks to the inflation outlook are roughly balanced,” Macklem says.

Now the tariffs are a huge asterisk but there is a fair chance that we come out of the weekend with no tariffs and a much clearer picture on Canada-US trade (I think they move up the USMCA re-neogotiations to this summer). That BOC in a neutral stance would require something of a repricing in markets as 42 bps of easing are currently priced in.

Now the uncertainty won’t go away with Trump so you could make cut out 15 bps of easing but there are some real upside risks to the loonie in the short term, rather than the one-way move we’ve had for months.

Macklem also highlights a pickup in several parts of the economy.

There are signs economic activity is gaining momentum as past interest
rate cuts work their way through the economy. Lower borrowing costs are
boosting activity in the housing market as well as consumer spending on
big-ticket items like automobiles. The pickup in household spending is
starting to broaden to other consumer items and is projected to
strengthen further. Business investment has been weak, but is forecast
to increase gradually. And the outlook for exports is being supported by
new export capacity for oil and gas.

That doesn’t sound like someone eager to cut much more.

Watch Macklem live here:

This article was written by Adam Button at www.forexlive.com.

• Crude oil inventory +3.463M versus 3.194 million estimate
• Gasoline inventory +2.957MM versus 1.348 million estimate
• Distillates inventory -4.994M versus -2.324 million estimate
• Cushing +0.326Mvs. last week -0.148 million

in other data:

• refining utilization -2.4% versus -1.0% last week (

The private data released late yesterday showed:

This article was written by Greg Michalowski at www.forexlive.com.

I flagged that there was going to be a drop in this tracker due to soft inventory and trade data today and now we get the numbers as it’s cut to 2.3% from 3.2%.

The Atlanta Fed said:

“After this morning’s Advance Economic Indicators release from the US
Census Bureau, the nowcast of fourth-quarter real gross private domestic
investment growth decreased from 0.1 percent to -0.9 percent, while the
nowcast of the contribution of net exports to fourth-quarter real GDP
growth fell from 0.10 percentage points to -0.61 percentage points.”

The consensus for tomorrow’s report is 2.6% but there are downside risks to that now, which are downside risks to the US dollar. Given these skews, I would peg GDP at 2.2% tomorrow.

This article was written by Adam Button at www.forexlive.com.

The Bank of Canada had flagged in its December statement that it was likely to revise down 2025 GDP forecasts.

Canadian forecasts compared to October:

• 2025 GDP growth forecast cut to 1.8% from 2.1%
• Q4 2024 GDP growth trimmed to 1.8% from 2.0%
• CPI inflation revised up for 2024 annual (2.4% vs 2.3%)
• Core inflation notably higher in Q4 2024 (2.6% vs 2.3%)
• 2025 CPI seen at 2.3% vs 2.2% prior
• Q4 CPI seen at 3.3% vs 2.0% prior
• The output gap is estimated to be about 0.3 pp
  narrower than it was before upward revisions to historical data and is at -1.25% to -0.25% (vs -1.75% to -0.75% in Oct)

Global growth outlook key revisions:

• US growth edged up to 2.6% (prev 2.4%)
• China growth higher at 4.9% (prev 4.3%)
• Euro area lower at 0.8% (prev 1.2%)
• Global growth steady at 3.1%

Critically, these forecasts don’t include the potential impacts of tariffs.

Domestically, there is only a 0.3 pp downgrade in growth but the composition is significantly changed:

• Consumption growth forecast nearly doubled to 1.3% (prev 0.7%)
• Business investment sharply lower at 0.1% (prev 0.4%)
• Exports dramatically reduced to 0.6% (prev 1.5%)
• Final domestic demand slightly higher at 2.4% (prev 2.2%)

That’s asking a lot from the consumer.

This article was written by Adam Button at www.forexlive.com.

• A 25 basis point cut was 99% priced in
• Prior to the BOC, the market was pricing in 68.5 bps in easing in 2025 (67.6 bps after the announcement)
• BOC announces the end of quantitative tightening
• Will restart asset purchases in early March, beginning gradually so that its balance sheet stabilizes and then grows modestly
• Says the cumulative reduction in the policy rate since last June is substantial
• We will be following tariff developments closely and assessing the implications for economic activity

Macklem will hold a press conference at 10:30 am ET but the opening statement was published along with the statement.

There isn’t much of a signal about what’s going to come next here in the absence of tariffs but that’s understandable given the uncertainty.

This article was written by Adam Button at www.forexlive.com.

Trump’s supposed reasons for the tariffs are drugs and illegal immigration yet Mexico doesn’t seem worried and Canada is.

Again here, Claudia Sheinbaum is brushing off tariffs. Trump also said that they were ‘doing better’ with Mexico, despite Mexico turning away a deportation flight on the weekend.

I believe that the real reason for tariffs is this and it’s what will solve the issue. That said, no one can confidently predict Trump.

This article was written by Adam Button at www.forexlive.com.

The Canadian dollar is facing some big headwinds in the next few days.

Up first is today’s Bank of Canada decision. The market is fully priced for a rate cut today and there is some talk about a surprise 50 bps move, though that’s an extreme outlier from my perspective.

I expect the Bank of Canada to highlight that it has more dry powder in a tariff war but not offer a signal for the subsequent meeting.

Beyond that, Saturday is Trump’s supposed day to put 25% tariffs on all goods from Canada and Mexico plus 10% on China. The market isn’t priced for that threat as it believes he’s bluffing. I’d note that the Saturday deadline is also instructive as it could allow him to announce something and then walk it back before Monday markets, similar to what happened with Colombia.

What might have the market a bit more worried today is that Canada is doing things like preparing a covid-style stimulus plan and calling for a summit of nations targeted by tariffs. That shows some real concern.

Technically, the picture is more constructive as all this worrisome news hasn’t led to a breakout, though it’s not far off.

The pair could easily stretch above 1.50 if a tariff war kicks off. That said, there is always two-way risk as even if there are tariffs on Monday morning, they could be gone by Tuesday. That will make it challenging to pile into USD/CAD longs too heavily.

It’s also worth noting how aggressively Colombian markets have rallied strongly with the tariff threat passed.

This article was written by Adam Button at www.forexlive.com.

The US dollar is at the best levels of the day as North American traders greet a double-day of central bank decisions. First up is the Bank of Canada at 9:45 am ET and then at 2 pm ET we get the FOMC.

The dollar bid undoubtedly highlights some angst about tariffs as the White House continues to talk about imposing them on Mexico, China and Canada on the weekend. Treasury yields pulling in the opposite direction of the dollar as they decline 2-3 bps across the curve.

Here’s BMO’s Ian Lyngen on tariffs:

“Backing into a rough
guestimate of the impact of tariffs on the go-to inflation measures is arguably
the ‘easy’ part, while creating a reasonable projection for how shifting demand
preference and substitution trends will ultimately impact real growth is far
more complex and entails less concrete assumptions.”

There are also the questions of how other countries could retaliate and how much government stimulus could be enacted.

Finally, there could be some demand for US dollar as buyers dip back into US tech stocks following the rout on Monday.

This article was written by Adam Button at www.forexlive.com.

• Prior month -102.9 billion
• Advance goods trade balance -122.1Bvs -105.6B

The deficiit is near the the 2022 low which i believe was influece by port strike. This is likely in response to the Trump tariffs.

Yesterday, the President and Treasury Sec. Bessent said that tariffs may go up by 2.5% each month. Well if you know prices on imports will go up – especially on goods that just can’t be turned on like a light switch – companies will import all they can now and save. PS they can also raise prices and blame the tariffs. That seems to be the dynamics in play which will mess up the numbers.

This article was written by Greg Michalowski at www.forexlive.com.