The Morning Update

The USD steadied, oil prices firmed, equity markets are up, and US yields are mixed ahead of the key US inflation report. The USD stalls near a three-and-a-half-year low as investors increasingly expect a Q3 Fed interest rate cut. Global equities and US futures advance, and Asian shares hit over three-year highs, as the US moved closer to a trade deal with China and other major trading partners. Oil prices edge higher, but are set for their steepest weekly decline in nearly two years as supply risk subsides. U.S. Commerce Secretary Howard Lutnick stated that the U.S. and China have finalized an understanding, and that the White House is nearing agreements with 10 major trading partners ahead of the July 9th deadline for reciprocal tariffs. The Treasury Department announced a deal with G7 allies that will exclude US companies from some taxes imposed by other countries in exchange for removing the 'revenge tax' proposal from Trump's tax bill. Elsewhere, Bitcoin weakens 0.5% to $107k, gold and silver prices tumble as risk-on sentiment improves. The key focus will be on the US Core Personal Consumption Expenditures - Price Index y/y, which is expected to rise to 2.6% in May from 2.5% in April. Investors will also be focusing on the Michigan Consumer Sentiment & Expectations Index and CAD GDP to help drive direction in currency markets today.

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In the news. Trump says US-China trade truce has been 'signed.' The US Treasury ask Congress to scrap the foreign revenge tax in the Trump bill. The White House says decision on nominating the next Fed chair is not 'imminent.' China's May industrial profits slip back into sharp decline. EU leaders discuss new trade proposal as deal clock ticks down. The ECB is on the path to meet its 2% target, ECB's De Guindos says. Bumper orders for Xiaomi's new SUV heighten the threat to Tesla. China bans uncertified and recalled power banks on planes. Canada's budget watchdog urges Carney to show numbers as spending rises.

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In currency markets. The EUR, CHF, GBP, and MXN all advanced by more than 2% against the USD in June, as the greenback remains under pressure due to expectations of a Fed rate cut and improving global risk-on sentiment. CNY and Asian currencies, on average, are flat against the USD. Trading currencies are somewhat sidelined ahead of the key US inflation report, with AUD and ZAR down 0.1%, KWD and MXN flat. JPY, NZD, DKK, and CZK are up 0.1%, while CHF, NOK, and SEK have strengthened by 0.35% against the USD.

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In commodity markets. Oil prices firmed by 0.75%. Natural Gas prices rallied by 2.8%. Gold and Copper prices weakened by 1.6%. Silver prices tumbled by 2.2%. Wheat strengthened by 1.2% and Soybean prices up 0.3%.

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CAD gives back some of Thursday's gains, unable to capitalize on the increasing expectations of a Fed rate cut in Q3, as the prospect of further weakness in oil prices caps the loonie's ability to rally. Alongside the US core PCE, investors will be focused on the Canadian GDP, which is expected to have grown by 0.1% in April, matching the growth seen in March. The growth is anticipated to be driven by increases in mining, oil and gas extractions, offsetting decreases in manufacturing.

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EURCAD continues to advance, strengthening by 2.3% in June and increasing by over 9% annually, as weaker oil prices and US trade war concerns favour the euro.

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EUR steadies above 1.1700, ahead of the key US inflation report for fresh impetus. The euro consolidates below its multi-year highs as the USD steadies, with investors sidelined ahead of the US PCE inflation report. The core Personal Consumption Expenditures price index is expected to rise to 2.3% y/y vs 2.1% previously. If markets see a bigger-than-expected forecast increase, this would be bullish for the USD, pressuring the euro and could see the single currency slip back towards 1.1625.

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GBPEUR holds steady as markets remain sidelined ahead of the key US inflation report, with caution ahead of the month-end.

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GBP holds on to weekly gains, stalling near multi-year highs ahead of the US PCE report. The pound stalls near three-year highs amid sustained USD weakness following President Trump's continued attacks on Fed Chair Powell. Domestically, BoE Governor Bailey told the Lords Economic Affairs Committee on Tuesday that they are starting to observe labour market softening. Elsewhere, Deputy Governor Ramsden said that if evidence becomes stronger that inflation will undershoot its target, they can speed up cuts. Intraday, the US inflation report will be the primary driver for the pound.