The Morning Update

The USD strengthens, oil prices remain steady, equity markets decline, and US yields are mixed as the US escalates trade tariffs. The USD advances as risk sentiment eases, while confidence in the US economy remains high, and optimism ahead of the earnings season supports the greenback. US futures retreat from record highs, and European equities decline for the first time this week as the latest tariff announcements introduced fresh uncertainty for investors. The US threatens Canada with a 35% tariff, Vietnam requests a lower tariff rate, President Lula tells Trump that Brazil can survive without US trade, and letters to the EU members are expected shortly. Investors are having a "tariff fatigue," said David Chao at Invesco Asset Management. "There's just been so much policy overload, with constant updates, delays and new announcements that is creating a confusing environment." Elsewhere, Bitcoin rallied to an all-time high $118,629 in early trading, powered by demand from institutional investors and crypto-friendly policies from the US administration. Oil prices remain steady as investors weigh a less optimistic market outlook, while gold prices strengthen and silver prices rally by 3% in early trading. Another quiet US economic calendar, with the focus on the US Monthly Budget statement and the key CAD Unemployment Rate, which will help provide direction to currency markets today.

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In other news. Goldman Sachs is piloting its first autonomous coder in a major AI milestone for Wall Street. Trump offers to send more arms to Ukraine via Nato allies. The US state department is to begin mass lay-offs in the coming days.' Trump plans 'major' Russia statement on Monday and mulls sanctions. The UK economy unexpectedly contracted by 0.1% in May. The IEA forecasts the slowest oil demand growth outside of the pandemic since 2009. Manitoba premier shoots back at US lawmakers over smoke complaint. Trump threatens 35% tariffs on Canadian goods. Trump's copper tariffs set to include products for power grids and data centres.

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In currency markets. Hong Kong defends the HKD FX peg for the fourth time in two weeks. The USD advances after the US unveils new tariffs, and currency markets come under fresh selling pressure as risk-on sentiment fades. CNY firmed by 0.1%, while Asian currencies slipped 0.15% on average against the USD. Trading currencies come under pressure, with the ZAR tumbling 0.65%, the JPY & MXN weakening by 0.55%, the NZD and NOK falling by 0.4%, the AUD and SEK easing by 0.25%, DKK & KWD flat, and the outlier CHF up 0.1% against the USD.

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CAD weakened to 1.3700 in early trading on the back of the latest US tariff announcement, but investors remain cautious ahead of today's key CAD employment report. President Trump told Prime Minister Carney that a new rate of 35% tariff will be applied to Canada effective August 1st, and threatened additional tariffs if Canada retaliates with reciprocal tariffs. Trump cited Fentanyl, high dairy levies, and retaliatory duties as the reason for the 35% tariffs. 'The Canadian government has steadfastly defended our workers and businesses. We will continue to do so as we work towards the revised deadline of August 1st. Today's Canadian unemployment rate is expected to rise to 7.1% in June, and the net change in employment is expected to be flat, down from 8.8k in May. A higher Canadian unemployment rate will help bolster the prospect of a BoC rate cut outlook.

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EURCAD extends gains as the latest US tariff announcement against Canada puts pressure on the loonie.

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EUR dips below 1.1700 in tight trading as the EU awaits its US tariff announcement. The euro is holding within a tight trading range against the USD as investors cautiously await updates on US-EU trade negotiations. French Prime Minister Francois Bayrou called on the ECB to provide more support via looser monetary policy, which highlights growing unease among EU leaders about the risk of keeping rates on hold for too long, especially with a strong euro weighing on exports. Intraday, with the lack of US & EU economic data releases, markets will be monitoring EU-US trade news for direction.

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GBPEUR weakens following the weaker-than-expected UK GDP report and the disappointing UK industrial production number.

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GBP dropped through 1.3550 on disappointing economic data. The UK economy shrank again in May, increasing concerns about the UK's financial outlook for the second half of 2025. The GDP for May fell to -0.1%, compared to expectations of +0.1%. The Industrial production year-over-year in May fell to -0.9%, compared to expectations of 0%. However, on a positive note, both manufacturing production and the Index of Services met expectations. With the lack of US economic data, we expect the pound to hold within its current trading levels.