The Canadian dollar fell on Wednesday, after the Bank of Canada raised interest rates by 25 basis points to 1.25%, but cited the renegotiation of the North American Free Trade Agreement as a risk. “Recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity. However, uncertainty surrounding the future of Nafta is clouding the economic outlook,” the BOC statement read. It further said that “some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.” In November, core consumer price inflation stood at 1.3%, compared with the BOC target around 2%. Market participants updated their forecasts to reflect their anticipation of Wednesday’s rate hike after Canada posted strong December employment data earlier this month. The BOC raised interest rates twice in 2017, but then took a dovish turn in its language. One U.S. dollar last bought C$1.2467, compared with C$1.2435 late Tuesday. The yield on Canada’s ten-year government bond slipped 0.8% to 2.16%.
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