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The Canadian dollar CADUSD strengthened to its highest level in 2-1/2 months against its U.S. counterpart on Wednesday, as domestic data showed growth in the factory sector and the U.S. Federal Reserve raised interest rates as expected.

Wall Street shares rallied and the U.S. dollar fell against a basket of major currencies as the Fed hiked by a quarter of a percentage point and promised “ongoing increases,” but acknowledged that inflation pressures are easing.

“The FOMC (Federal Open Market Committee) will be less willing to deliver as much economic pain as it might previously have thought would be necessary should inflation run at the more moderate pace we’ve been seeing in the last 3-6 months,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 51.0 in January from 49.2 in December as an uptick in domestic demand led to firms increasing production. It was the first month since July that the index was above the 50 threshold that marks expansion in the sector.

The Canadian dollar strengthened to 0.1% to 1.3290 per greenback, or 75.24 U.S. cents, after touching its strongest since Nov. 16 at 1.3275.

The gain for the loonie came even as the price of oil, one of Canada’s major exports, settled 3.1% lower at $74.41 a barrel, pressured by U.S. government data showing big increases in inventory.

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries.

The 10-year eased 6.1 basis points at 2.857%, while the gap between it and the equivalent U.S. rate narrowed by 6.2 basis points to about 55 basis points in favour of the U.S. bond.