The Morning Update

The USD rallies, oil prices ease, equity markets are mixed, and US yields ease as risk sentiment wanes. The USD extends gains following Wednesday's hawkish Fed comments and safe-haven buying, while the Euro extends losses as anxiety over France's snap elections concerns investors. European equity markets are heading for their worst weeks since October due to growing concerns over the political uncertainty in France. Investors are worried about a win for Marine Le Pen's far-right party, the National Rally party, which leads the polls and could usher in a looser fiscal policy for France. "It's hard to ignore the parallels between our current situation and the time of the sovereign debt crisis, as there's that familiar focus on elections results, sovereign bonds, and debt sustainability," said Reid of Deutsche Bank AG. That's "coupled with no obvious sign about where things are headed next." Elsewhere, Oil prices end the week on a stable note, while Bitcoin edges higher towards $67k, and Gold & Silver rebound in early trading. Today's focus will be on the US Michigan Consumer Sentiment Index, and speeches by ECB Schnabel & ECB president Lagarde and Fed's Goolsbee will help provide intraday direction to currency markets.

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In other news. The Ukraine summit attracts world leaders but fails to isolate Russia. Chinese firms seek anti-dumping probe of EU pork imports. Reports show that Chinese automakers overtake US rivals in sales for the first time. Treasury Secretary Yellen said more Ukraine aid can be backed by frozen Russian assets after an initial $50 billion loan. French stocks head for worst week since 2022 over fears of far-right election win. UK inflation expectations fall to their lowest level in three years. China's support for Russia is a 'long-term threat' to European security, G7 warns. BoJ will 'significantly' scale back the bond buying shift on the ultra-loose policy. The Euro STOXX volatility Index rises to its highest level since October, up 22.5%.

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In currency markets. The euro is weakening due to increasing political uncertainty in France, while China holds at 7-month lows, and the USD extends gains as investors return to the safe-haven USD. CNY slips 0.1%, while Asian currencies weaken by 0.25% on average against the USD. Trading currencies come under renewed selling pressure, with MXN tumbling 1.7%, NZD & SEK falling 0.7%, AUD weakening 0.5%, NOK easing 0.3%, JPY & ZAR slipping 0.1%, and CHF flat against the USD.

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In commodity markets. Oil prices weakened by 0.3%, Natural Gas prices slipped by 0.2%, Gold prices strengthened by 0.9%, Silver prices firmed by 0.3%, Copper prices eased by 0.7%, Wheat Prices tumbled by 1%, and Soybean prices fell by 0.55%.

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CAD continues to edge lower as commodity prices ease, CAD yields slip to 3-month lows, and the USD extends gains on safe-haven buying as global risk sentiment wanes. Domestically, Statistics Canada says Canadian household debt relative to income is down in Q1. Fiera CEO says the Bank of Canada has a clear path to 3% interest rates by the end of 2025. CAD has two low-tier economic data releases today. Manufacturing Sales are expected to rise to 1.2%, and Wholesale Sales are forecasted to rise to 2.8%. Investors will focus on the US Michigan Consumer Sentiment Index to help drive intraday direction to today's currency markets.

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EURCAD tumbles as increasing political uncertainty in France has triggered investor uncertainty in the single currency.

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EUR breaches 1.0700 as investors favor the safe haven USD amid growing European political uncertainty. The negative shift in risk mood following the EU parliamentary elections, which saw far-right parties take significant gains and prompted snap elections in France. The uncertainty in France has increased the premium France pays on its debt to Germany, which is on pace for the biggest move stretching back to the European debt crisis in 2011. In France, left parties vowed to unite, delivering another blow to Macron's June 30th election hopes. Technically, if we see a break of 1.0670, this will open up a move to 1.0600 next.

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GBPEUR holds 22-month highs as political uncertainty keeps pressure on the Euro.

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GBP extends losses towards 1.2700 as UK inflation eases, while investors turn to the USD as risk-off sentiment grows. The pound weakened for a 2nd day, which has seen the GBP fall from Wednesday's higher of 1.2850 to struggling to hold at 1.2700 today. The pound came under pressure on the Fed's hawkish comments, while domestically, UK inflation expectations fell to their lowest levels in three years. Markets are increasingly expecting that the BoE may cut rates ahead of the Fed, and the prospect of diverging interest rates has put additional selling pressure on the pound. Today, markets will focus on US data, while UK investors are expected to remain sidelined ahead of the Bank of England's interest rate decision next week.

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