The Morning Update

The USD steadies, oil prices edge higher, equity markets are mixed, and US yields ease as the focus shifts to PMI reports. The USD steadies after falling 2% since Wednesday, oil prices look set for their first weekly rise in two months, equity markets are sitting at yearly highs and US yields broke below 4% for the first time since August. On Wednesday, Fed Chair Powell set off a frenzy in markets this week when he signaled the pivot in interest rates and shift to rate cuts in 2024, while on Thursday the ECB and BoE maintained their cautious tone in their policy statements. "The contrast between the resilient US economy adopting a dovish stance and faltering European economies holding to a hawkish position gives the impression that something is amiss," said Ipek Ozkardeskaya, senior analyst at Swissquote. The focus shifts to the US NY Empire State Manufacturing Index, S&P Global Composite, Manufacturing, and Services PMI data, and In CAD BoC Governor Macklem's Speech will help provide intraday direction to currency markets today.

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In other news. Eurozone likely in recession, weak PMI data shows. Hungary's Orban blocks aid for Ukraine, saying he can still halt EC accession. US stresses safety for Gaza civilians as Israel is unrelenting in attacks. Cold wave freezes most of China, shutting highways and roads. The US Senate is to vote on Ukraine funding, and border security next week. China's weak property sector and retail sales keep stimulus calls alive. China pressured Taiwan with trade accusations and warplanes a month before the election. Guyana and Venezuela agreed not to use force or escalate tensions in the Esequibo dispute. UK business activity rises more than expected.

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In currency markets. The USD steadies at 4-month lows after the Fed Chair statement on Wednesday. JPY is set for its 5th straight week of gains. CNY extends gains, testing 6-month highs, while AUD & NZD test near 5-month highs vs USD. CNY firms 0.1%, while Asian currencies are flat on average vs USD. Trading currencies remain mostly strong with JPY, SEK & CHF up 0.15%, AUD & NZD firmed 0.3%, NOK strengthened 0.5% and ZAR rallied 0.95%, while outlier MXN weakened 0.2% vs USD.

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In commodity markets. Oil, Soybean, Copper, and Gold prices firmed by 0.6%, Natural Gas prices rallied by 1.4%, while Silver and Wheat prices strengthened by 0.8%.

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CAD extends its rally, up 1.4% in December vs USD testing a fresh 5-month high after the Fed Chair affirmed soft landing bets, signaling a victory on inflation and a shift to interest rate cuts in 2024. Today the focus will shift to BoC Governor Macklem's speech with investors monitoring his comments to see if he follows the Fed Chair's lead or will the BoC maintain a cautious tone similar to his ECB & BoE peers. Investors will focus on the next key support level of 1.3333 - 75 cents, which could open up a move to 1.3150 next.

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EURCAD weakens as commodity prices extend gains and as European PMI data disappoints markets.

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EUR stalls at 1.1000 and retraces towards 1.0950 after weak PMI data. The euro has come under selling pressure business activity in the private sector contracted across Germany, France, Italy, and the EU in December. This week saw the ECB keep interest rates on hold, but policymakers took a different route than the Fed by maintaining their wait-and-see stance on inflation, before committing to lower interest rates into 2024. Today ECB policymaker Muller said it was too early to declare victory over inflation and reiterated that it was also too early to talk about lowering key rates. Intraday US PMI data will help provide intraday direction to the Euro.

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GBPEUR advances after disappointing Eurozone PMI data put selling pressure on the single currency.

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GBP holds onto gains above 1.2750 after upbeat PMI data. The pound holds steady above 1.2750 vs USD after data from the UK revealed an acceleration in the growth pace in the private sector's economic activity. Despite the worsening overall growth outlook and easing pressure on wage inflation in the UK, the BoE maintained its hawkish tone. The BoE Governor in his statement said that it was too early to say that interest rates have peaked. Intraday US PMI data will drive the direction of the pound.

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