Dollar Slides; Euro Surges, Loonie Rallies on CPI!

Across FX desks today the single, unambiguous theme was a weaker U.S. dollar. Traders pared back expectations for near‑term Fed tightening, sending the euro to fresh multi‑year highs and nudging many dollar‑pairs higher. At the same time, a softer Canadian inflation print produced a short, constructive move in the loonie—even as that same data lifted the probability of future Bank of Canada easing.

Major theme: Broad dollar weakness lifts the euro

What happened

The dollar slid sharply across major crosses, leaving the U.S. Dollar Index near recent lows and pushing the euro toward its strongest levels in several years. The move was driven by a combination of fading Fed hawkishness priced by markets and positioning ahead of the U.S. central bank’s policy announcement and press conference.

Why it matters for FX

When the dollar weakens in a sustained way it mechanically boosts most G10 and a range of emerging‑market currencies. That shift often becomes the dominant influence on pairs that would otherwise be reacting to local data or central bank commentary. For traders, the USD leg now reads like the primary directional signal: Euro strength, yen weakness, and gains in commodity currencies have largely tracked the same dollar dynamics.

Near‑term outlook and trade ideas

Watch the Fed decision and Powell’s remarks for guidance on the timing and pace of easing—those will likely re‑establish the next directional leg for the dollar. Short‑term traders should prefer trade ideas that follow the USD impulse (for example, long EUR/USD on confirmed breakouts or fading intraday dollar rallies). Use disciplined stops: a reversal in U.S. rate expectations can snap USD‑centric moves quickly.

Minor theme: Canada CPI undershoots, loonie reacts

What happened

Canada’s August consumer price index came in a touch softer than consensus, with headline inflation easing below expectations and trimmed measures showing cooler momentum. The immediate market reaction was a firmer Canadian dollar as traders digested the data, but the print also increased the market’s odds that the Bank of Canada will consider rate cuts later than previously thought.

Why it matters for USD/CAD

The CPI miss creates a two‑way tug for USD/CAD. On one hand, weaker Canadian inflation argues for a more dovish BoC trajectory, which is a headwind for the loonie. On the other, a broadly softer dollar has been the dominant driver across pairs, so USD/CAD can still decline even if domestic drivers point the other way. In short: the USD leg remains the primary price engine in the near term.

Practical takeaways for traders

If you trade USD/CAD, prioritize USD direction and global risk flows over one‑off Canadian prints unless a consistent data string alters BoC expectations. Consider smaller position sizes when domestic and dollar drivers conflict, and use stops that account for elevated volatility around central‑bank events.

What to watch next

The upcoming Federal Reserve decision and Chair Powell’s press conference are the immediate catalysts. Those communications will determine whether the dollar weakness persists or gives way to a re‑risking in rate expectations. For Canada, follow subsequent inflation releases and BoC commentary for confirmation that the CPI softening reflects a durable trend rather than a temporary blip.

Bottom line: Dollar direction is the dominant cross‑cutting force today—trade with that bias, but respect local data surprises that can quickly reshape single‑currency positions.