US & Canada – Fed and Bank of Canada cut rates; Powell signals caution on further easing
The US Federal Reserve delivered a widely expected 25-basis point cut to the Fed Funds rate yesterday, bringing the cumulative reduction since summer 2024 to 150bps.
While the decision was priced in, Chair Jerome Powell’s remarks introduced a more cautious tone. He emphasised the scale of previous easing and suggested that markets may be overestimating the likelihood of a December cut and the extent of rate reductions in 2026.
As a result, the probability of a December cut fell from over 95% to around 70%, prompting renewed USD strength. EURUSD touched multi-week lows, GBPUSD hit multi-month lows, and USDJPY reached multi-month highs.
In Canada, the Bank of Canada also cut rates by 25bps to 2.25%. Governor Tiff Macklem signalled that further easing is unlikely this year, citing elevated uncertainty but noting that downside inflation risks appear to be easing. That view may be premature, given falling shipping costs, increased oil supply, and signs of cooling trade tensions between the US and China, all of which could dampen global inflation. The Canadian dollar weakened slightly following the decision.
UK – Borrowing rises; is this a legacy of low rates or a symptom of income pressure?
September lending data showed a rise in both secured and unsecured borrowing. Mortgage lending increased by £5.5bn, despite signs of cooling demand in the housing market. Unsecured credit growth also ticked higher, with annual net lending rising from 7.2% to 7.3%.
The data raises questions: is this a sign of improving consumer confidence, or are households relying more heavily on credit to offset income pressures? Either way, sterling showed little reaction and continues to underperform against major currencies.
EUR – French GDP surprises to the upside, but broader euro area picture remains mixed
France delivered a positive surprise with Q3 GDP growth of 0.5% quarter-on-quarter, beating expectations of 0.3%. This followed stronger-than-expected figures from Belgium and the Netherlands. However, Germany and Italy disappointed, with both economies stagnating in Q3 after declines in Q2.
The euro area’s overall growth rate may come in slightly above the 0.1% consensus, which could support recent EUR gains against GBP and help offset overnight losses versus the USD. Whether the stronger French performance can outweigh weakness in Germany and Italy remains to be seen, but the data suggests a modest upside risk to euro area growth expectations.
Neil Parker
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