USD/CAD jumps as hot US CPI boosts Fed 'higher for longer' interest rates bets

• USD/CAD gains sharply to near 1.4340 after the release of the hotter-than-expected US CPI data for January.
• The US core CPI surprisingly accelerated to 3.3% year-on-year.
• US President Trump's order of 25% tariffs on imports of steel and aluminum weighs on the Canadian Dollar.

The USD/CAD pair climbs to near 1.4340 in North American trading hours on Wednesday. The Loonie pair gains as the US Dollar (USD) strengthens after the release of the United States (US) Consumer Price Index (CPI) report for January, which showed that price pressures rose at a faster-than-expected pace in January.

On year, the headline CPI rose by 3%, faster than estimates and the December reading of 2.9%. The core inflation - which excludes volatile food and energy prices - surprisingly accelerated to 3.3% from 3.2% in December. Economists had anticipated the underlying inflation to rose at a slower pace of 3.1%.

Month-on-month growth in the headline and core inflation was 0.5% and 0.4%, respectively, faster than estimates of 0.3%.

Hotter-than-expected US inflation data has forced traders to pare Federal Reserve (Fed) dovish bets for the June policy meeting. According to the CME FedWatch tool, the probability for the Fed to reduce interest rates in June has eased to almost 35% after the US inflation data release. from 49% recorded on Tuesday.

On Tuesday, Fed Chair Jerome Powell stated in his testimony before Congress that the central bank is in "no hurry to cut interest rates," given resilient economic growth and sticky inflationary pressures.

Meanwhile, the Canadian Dollar (CAD) remains under pressure as the Canadian economy is expected to face severe consequences of Us President Donald Trump's order to impose 25% tariffs on imports of steel and aluminum. It is worth noting that Canada is the leading exporter of aluminum to the US.