The Morning Update

The USD edges higher, oil prices ease, equity markets are up, and US yields rise ahead of Fed Chair Powell's speech. The USD edges higher as investors pare rate cut bets ahead of the Fed Chair Powell's address at Jackson Hole later in the day. Global equity markets edge higher, closer towards all-time highs, while investors remain cautious, looking for clues on future rate policy from Powell's speech today. US treasuries held steady after Thursday's pullback, with the 10-year rate at 4.33%. "If the Fed doesn't cut in September, markets will drop because they are expecting the Fed to do something. If they cut too much, markets may take it as a sign that the Fed is losing its independence, which may trigger much higher inflation," said Joachim Klement of Panmure Liberum. Elsewhere, oil prices retrace with investor caution ahead of the Fed Chair's speech, Bitcoin prices firmed to $112,800, while gold and silver prices eased in early trading. In focus today, the CAD Retail Sales report and Fed Chair Powell's speech will help direct intraday direction to currency markets.

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In the news. The EU speeds up plans for a digital euro after the US stablecoin law. Germany falls back into 'recessionary territory' as second-quarter GDP revised down. Taiwan weighs a return to nuclear power amid an AI surge and growing China fears. US factory in Ukraine hit in the largest Russian air attack for weeks. Trump and Carney talk about trade and agree to speak again soon. Japanese 30-year bond yields hit a record high on inflation woes. Nvidia in talks with the US to sell a more advanced chip to China. Putin's demand to Ukraine: give up Donbas, no NATO and no Western troops. Consumer advocate says Air Canada is defying federal passenger protection regulations.

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In currency markets. The USD index is sidelined ahead of today's speech by the Fed Chair. The euro eases in early trading following a disappointing growth report, and Hungary leaves its base rate on hold at 6.5% despite its struggling economy. The CNY and Asian currencies are flat on average against the USD. Trading currencies are mixed, with NOK tumbling 0.5%, PLN, NZD and SEK weakening 0.3%, JPY, CZK & DKK easing 0.2%, AUD & CHF down 0.1%, KWD flat, MXN up 0.1% and ZAR strengthened 0.3% against the USD.

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In commodity markets. Oil & Gold prices eased by 0.2%. Natural Gas prices tumbled 1.7%. Silver & Wheat prices weakened by 0.4%. Copper & Soybean prices are flat.

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CAD continues to test three-month lows as the loonie continues under pressure on the prospect of BoC easing in October, while investors are growing cautious that the Fed may not cut rates as expected in Q4. Investors will be focused on the Canadian Retail Sales report for June, which is expected to rebound significantly, up 1.5%, vs -1.1% in May. If we see the retail sales print lower than expected, it would support the case for the Bank of Canada to continue its easing policy. Intraday, we expect the loonie to be sidelined if the Retail Sales come in as expected, with Investors focusing on Powell's speech and cues on the Fed's next steps.

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EURCAD holds steady heading into the CAD retail sales and steady oil prices.

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EUR holds steady despite disappointing German growth, with investors sidelined ahead of the Fed. The euro straddles 1.1600 with investors sidelined ahead of Powell's speech at the Jackson Hole Economic Symposium as markets pare back bets on an imminent interest rate cut. Domestically, the German Q2 GDP dropped a price-adjusted 0.2% year over year, and dropped -0.3% quarter over quarter as US tariffs slowed exports. "It looks unlikely that any substantial recovery will materialize before 2026," said Carsten Brzeski, at ING.

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GBPEUR edges higher after disappointing German growth put pressure on the euro in early trading.

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GBP trades above 1.3400, while markets remain cautious ahead of the Fed Chair's speech. The pound tested a two-week low in early trading, before edging off the lows as investors turned wary ahead of the Fed Chair's speech, with markets scaling back expectations of a Fed rate cut in October. The pound is on track for a weekly fall, with its outlook remaining clouded by ongoing domestic fiscal risks. While we have seen improving business survey data and improving public borrowing updates on Thursday, this has helped provide some support, but investors remain cautious heading into the autumn budget announcement.