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EUR/USD was barely changed at 1.0870 ahead of today’s pre-committed rate cut by the European Central Bank.The governing council meeting will likely lower the main refi, marginal lending facility, and deposit facility rates by 25 bps each to 4.25%, 4.50%, and 3.75%, respectively. Like the Bank of Canada, the ECB’s rate cut would be targeted at reducing “top level” restriction. However, core inflation rose to 2.9% YoY in May from 2.7% in April, its first increase since June 2023, and above the ECB’s 2.6% forecast for 2024. CPI inflation also stalled in a 2.4-2.6% range over the past four months, near the 2.6% forecast for 2024. Hence, expect the council to emphasize the need for policy to remain restrictive for the rest of the year to get inflation to the 2% target. The ECB’s new inflation forecasts should highlight that the next steps in the easing cycle as bumpy and gradual, with data-dependent decisions made meeting by meeting. Like BOC’s meeting, EUR/USD will likely be volatile within its three-week range between 1.08 and 1.09. Barring dovish surprises from the ECB, EUR/USD will likely remain supported ahead of tomorrow’s US nonfarm payrolls holding below 200k for a second month. 
USD/CAD initially spiked to 1.3740 before ending the session lower at 1.3695, near Tuesday’s close of 1.3675. The Bank of Canada reduced its overnight lending rate by 25 bps to 4.75%, signalling that the path of rate cuts will be gradual, taking rate decisions one meeting at a time. The governing council agreed that interest rates need not be as restrictive as it had been because headline and underlying inflation eased to 2.7% YoY and 2.75% in April, below the BOC’s 3% projection for 1H24 and nearer the 2.5% forecast for 2H24. Hence, the OIS market sees a 64% chance of a back-to-back cut at the July 24 meeting and a third cut to 4.25% in the final quarter of the year. The BOC will release its new inflation forecasts at the July meeting, which will signal if it gets the evidence that the downward momentum towards the 2% is sustained. However, we also attributed USD/CAD’s recent fall to the Canadian economy exiting its flat growth in 2H23 to expand at 1.7% QoQ saar in 1Q24, faster than the US economy’s 1.3% pace. We doubt that USD/CAD will break its tight correlation with the DXY Index which we see depreciating on two Fed cuts in 2H24. 
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