EUR/CAD rises as ECB remains cautious ahead of new Canadian data
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EUR/CAD moved up toward 1.6160 in early European trading on Friday, supported by the European Central Bank’s (ECB) recent policy decision[1] and anticipation of upcoming ECB official speeches.
On Thursday, the ECB kept its Deposit Facility Rate unchanged at 2%, as widely expected, and confirmed it will continue to base decisions on current data due to ongoing inflation uncertainty. President Christine Lagarde did not provide forward guidance, emphasising that future decisions will rely on economic data rather than a predetermined path[2].
The ECB’s updated projections indicated slightly stronger growth, with GDP forecasts[3] raised on expectations of increased public investment in infrastructure and defence. Lagarde noted that government spending may support growth[4], even as monetary policy stays restrictive.
The Canadian dollar remained stable after recent gains, as markets expect the Bank of Canada (BoC) to maintain its current policy[5]. Inflation is near target and the job market is gradually improving. Last week, the BoC held its policy rate at 2.25%, stating that economic slack should help contain cost pressures[6].
Focus now shifts to Canadian Retail Sales for October[7], due later today. Markets expect sales to remain flat month-on-month after September’s decline, which could influence the near-term direction of the CAD. The EUR/CAD exchange rate trades with a mild upward bias near 1.6160 as ECB policy stability contrasts with a cautious outlook for Canadian growth, leaving the pair sensitive to upcoming ECB commentary and Canada’s retail sales data.
EUR/GBP Steady Following BoE Rate Cut, ECB Maintains Policy
EUR/GBP remained stable near 0.8760 in early European trading on Friday, as markets absorbed the expected Bank of England (BoE) rate cut and the ECB’s unchanged policy[8]. On Thursday, the BoE reduced its Bank Rate by 25 basis points (bps) to 3.75%[9], marking the first cut in this cycle. The decision followed further evidence of easing inflation in the UK. Governor Andrew Bailey stated that future policy decisions will depend on economic data, with the pace and scale of additional cuts determined by upcoming inflation trends[10]. Despite the rate cut, the pound remained relatively stable, indicating that markets anticipate a gradual approach to further easing. Most analysts expect the next cut only if there is clear evidence of sustained declines in inflation[11]. The ECB kept interest rates steady on Thursday, in line with expectations. President Christine Lagarde reiterated that monetary policy is “in a good place” and emphasised there is no urgency to adjust rates. Recent forecasts indicate slightly stronger growth and a gradual return of inflation to target levels over the coming years[12]. Looking ahead, markets await the UK’s November retail sales data[13], due later today. The report may provide insight into consumer resilience following recent tighter financial conditions. The EUR/GBP exchange rate remains range-bound near 0.8760 as the BoE’s initial rate cut contrasts with ECB policy stability, leaving the cross sensitive to incoming UK consumption data and evolving rate expectations.
AUD/JPY stays strong after BoJ rate hike and hawkish RBA signals
On Friday, AUD/JPY continued to rise, trading near 103.00 during Asian hours. This followed a clear policy shift by the Bank of Japan (BoJ) and positive developments in Australia.
The BoJ raised its short-term policy rate by 25 bps to 0.75% [14], the highest level in thirty years. This unanimous decision indicates confidence that inflation will remain near the 2% target. The BoJ stated that real interest rates will remain supportive and signaled the possibility of further rate increases if economic and price conditions meet expectations.
Despite the rate hike, the Japanese Yen weakened slightly, suggesting that markets expect the BoJ to tighten policy gradually while supporting growth[15]. Consequently, AUD/JPY continued to rise.
In Australia, the Aussie Dollar strengthened as consumer inflation expectations rose to 4.7% in December, up from a three-month low in November[16]. This supports the Reserve Bank of Australia’s (RBA) cautious stance and suggests further rate hikes remain possible.
Stronger-than-expected private sector credit growth also contributed. Credit increased by 0.6% in November, surpassing forecasts[17]. Annual credit growth reached its fastest pace since early 2023, indicating robust domestic demand.
With Japanese policy now clearer and Australian inflation rising, AUD/JPY is responding to the diverging approaches of the two central banks. The AUD/JPY exchange rate remains supported near 103.00 as Japan’s measured policy tightening contrasts with Australia’s persistent inflation signals, keeping the cross biased higher despite near-term consolidation.
GBP/JPY Rises Following BoJ Rate Increase and BoE's Hawkish Cut
GBP/JPY strengthened towards 208.66 during Friday’s Asian session, climbing back above the mid-208.00s after briefly pulling back from a 17-year-high. The pair trades around 208.65 to 208.75, supported by diverging signals from the Japanese and UK central banks. The BoJ raised its policy rate by 25 bps to 0.75%, the highest in thirty years. This move shows its ongoing plan to return to normal policy slowly. The decision follows persistent inflation, with Japan’s national CPI staying above the BoJ’s 2% target. Despite the rate hike, the Japanese Yen slipped a bit as investors waited for more details on future rate increases through 2026. Markets are watching BoJ Governor Kazuo Ueda’s press conference for more information on the pace of changes[18]. Strong global sentiment has also lowered demand for the safe-haven yen. In the UK, the pound remains supported by the BoE’s recent rate cut, which passed by a narrow vote. The BoE lowered the Bank Rate by 25 basis points to 3.75%, with a 5 to 4 split reflecting disagreement after the latest inflation data[19]. The close vote has led markets to anticipate slower rate cuts next year, which supports the pound. More BoE rate cuts are expected in 2026, but policy differences between the UK and Japan continue to drive GBP/JPY volatility. The pair remains resilient, though narrowing rate differentials may limit future gains. The GBP/JPY exchange rate holds firm near 208.66; above the mid-208.00s as a hawkish-leaning BoE contrasts with cautious yen demand following Japan’s rate hike, keeping gains intact but vulnerable to policy guidance.
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