Hope Lifts Risk Appetites Ahead of the Bank of Canada and FOMC Meetings

Key Takeaways

• War eases oil flow, supporting WTI recovery
• Fed likely holds rates, may delay projected cut
• BoC likely holds rates, reducing hike expectations
• USD firm against yen, euro, and CAD amid uncertainty
• Equity markets rally globally, led by South Korea and Nikkei

Summary

Markets are navigating heightened uncertainty as the Middle East conflict eases oil flow, pushing WTI back above $94, while the Federal Reserve and Bank of Canada are set to keep policy unchanged. The Fed’s updated dot‑plot still signals a single rate cut this year, but the median may be pushed to next year, and the BoC faces little pressure to alter its 2.25% target. The U.S. dollar shows modest strength against most G10 currencies, especially the yen, while equities rally across Asia and Europe. Trading volumes remain subdued.

Pulse Analysis

The ongoing conflict in the Middle East, while still active, has seen a noticeable increase in oil shipments through the Strait of Hormuz and alternative pipelines. This easing of supply constraints lifted West Texas Intermediate from a three‑day low near $91.50 to above $94, reinforcing the view that the war’s immediate impact on global energy markets may be limited. Analysts note that President Trump’s optimism about a swift resolution further underpins the modest rebound in crude prices, which in turn eases inflation pressures that had been feeding into central‑bank deliberations.

Both the Federal Reserve and the Bank of Canada are expected to leave policy unchanged at their upcoming meetings. The Fed will release an updated Summary of Economic Projections, with the median dot‑plot still showing one rate cut for 2025, though a shift toward a later cut cannot be ruled out given the war‑induced uncertainty. In Canada, the BoC faces a 2.25% policy rate and a weakened case for a cut after weak pre‑war data and a modest rise in inflation expectations. Market pricing now reflects a near‑certain hold, with swap markets discounting further hikes.

Currency markets have responded with a firmer U.S. dollar against most G10 peers, notably slipping to a four‑day low against the yen at JPY 158.55 while the euro hovers near $1.1550. The Canadian dollar remains in a tight range, and the Australian dollar shows limited upside despite the RBA’s second rate hike. Equity indices are on the rise, led by a 5% surge in South Korea and a near‑3% jump in Japan’s Nikkei, extending a multi‑session rally that underscores risk‑on sentiment. Yield curves have softened, with the 10‑year U.S. Treasury slipping a few basis points, supporting the broader market optimism.