The Morning Update

The USD steadies, oil prices slip, equity markets are down, and US yields are mixed ending a week of key central bank actions. Markets appear to be consolidating after a busy week of central bank activity and a flurry of mixed corporate earnings. Oil prices are on track for their fifth week of gains, the USD rebounds near 1% on the week, and equity markets are set for their third weekly gains. This week saw the Fed hike 25bps, but leave the door open for future hikes, the ECB hiked 25bps but market expectations turn dovish and the BoJ kept its interest rates on hold but made yield control more flexible increasing speculation on a further policy shift. Today sees a busy economic docket with German Inflation data, US Core Personal Consumption Expenditures, Employment Cost Index, Personal Consumption Expenditures, Michigan Consumer Sentiment Index, and CAD Gross Domestic Product which will help the intraday direction for currency markets.

‍

In other news. Falling French inflation feeds hopes of halt of ECB interest rate rises. The BoJ monetary policy tweak sends bond yields to a 9-year high. French & Spanish economies (GDP) grow at a sustained pace in Q2, while Germany stagnates. Ford raises full-year guidance after a solid earnings beat, while Intel jumps 7% as it returns to profitability after two-quarters of losses. Putin praises 'militant friendship' with North Korea; US intelligence highlights China's economic support for Russia-CNBC.

‍

In currency news. The JPY has its most volatile trading session in months after the BoJ made its yield curve control policy more flexible. The USD holds steady after strong weekly gains on the Fed rate decision and as domestic growth data remains strong. China's yuan edges higher and maintains its support to domestic markets through stronger daily fixing. AUDJPY tumbles nearly 3% in the last two days after the BoJ tweak. CNY firms 0.25%, while Asian currencies slip 0.1% on average vs USD. Trading currencies are mixed as AUD tumbles 0.8%, NZD weakens 0.6%, CHF & SEK fall 0.2%, while NOK is flat, JPY firms 0.1%, ZAR strengthens 0.6%, and MXN rallies 0.7% vs USD.

‍

Oil prices slip in early trading, but remain on track for a fifth week of gains as improving demand and supply cuts are expected to keep prices buoyant. CAD slips in early trading to its weekly lows, but overall the CAD is flat on the month vs USD and remains up over 2% vs USD in 2023. Improving risk sentiment and higher commodity prices are expected to provide underlying support to the CAD. The Fed's action this week has put them on the same path as the BoC as far as interest rates go, which could keep the CAD rangebound vs USD. The focus will be on the CAD GDP (m/m May) today which is expected to firm 0.3% vs flat in April.

‍

EURCAD settles near weekly lows after the ECB hiked rates by 0.25%, but the increasing EU economic headwinds increase speculation that the ECB may not have room to raise future interest rates without pushing the eurozone into a recession.

‍

EUR remains under pressure after tumbling near 200 bps in response to the ECB rate hike and policy statement. The stronger USD and the dovish ECB rate hike and commentary are keeping the Euro in a bearish trend. Today saw GDP growth in Spain & France, but German growth continues to slip and increases growing stagnation concerns. On the inflation front, French inflation improved to 5%, Spanish inflation held steady and German inflation will be reported later this morning. Going forward Euro looks vulnerable to further weakness as persistent inflation levels, increasing costs from higher interest rates and slowing growth increases fears of recession taking hold across the EU.

‍

GBPEUR extends gains, rebounding towards monthly highs as the BoE interest rate decision on August 3rd comes into focus.

‍

GBP recovers through 1.2800 despite a strong USD. The pound recovered from Thursday's heavy losses, boun

‍