The Morning Update

The USD is steady, oil prices weaken, equity markets are mixed, and US yields ease heading into the US jobs data. The currency markets maintain their strength against the USD, while equity markets stall as investors await the US jobs data later in the morning. The Fed Chair's comments on Thursday suggested that the Fed is getting closer to the confidence it needs to start lowering rates. Investors have focused on today's Nonfarm Payrolls, which are expected to drop to 200k in February, down from 353k; if markets come out as expected, it should give confidence to markets that the Fed will cut interest rates in coming months. In Europe, the ECB reinforced the expectations that the central bank would ease interest rates in June. Elsewhere, US yields slipped to monthly lows on Powell's comments. Gold prices extend beyond $2,160 an ounce, gaining for an 8th day. Bitcoin holds above $67k. Today, US nonfarm payrolls, average hourly earnings, unemployment rate, Feds Williams speech, CAD unemployment rate, and the net change in employment will help provide intraday direction to currency markets.

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In other news. Biden attacks Trump in a fiery State of the Union speech (FT). The US Plans to establish a port on the Gaza coast to step up aid deliveries. China readies $27 billion chip funds to counter growing US curbs. The US embassy warns of an imminent attack in Moscow by 'extremists. Sweden joins NATO as war in Ukraine prompts security rethink. Ukraine presses peace plan, pointing to North Korea's involvement in talks with Chinese envoys. China's Xpeng's drone car AeroHT Voyager X2 completes a low-altitude flight in Guangzhou city. Canada PM Trudeau says there is no decision yet on funding for the UN Palestinian refugee agency. China's CNOOC has made 100 tons of oilfield discoveries in the Southern China Sea.

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In currency markets. The USD is heading for its 6th day of weakness, its sharpest weekly drop (2%) since mid-December on US rate cut expectations. Chinese Yuan holds steading into the US payrolls data, and as China's inflation comes into focus. CNY is flat, while Asian currencies are up 0.2% on average against the USD. Trading currencies extend gains, with SEK flat, MXN up 0.1%, NZD, ZAR, NOK & CHF firms 0.15%, AUD gaining 0.4%, and JPY strengthening 0.65% vs USD.

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In commodity markets. Oil prices weakened by 0.55%, Natural Gas prices fell by 0.95%, Gold prices firmed by 0.45%, Silver prices gained by 0.65%, Copper & Soybean prices are up by 0.2%, and Wheat prices rallied by 0.85%.

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CAD extends towards a 4-week high against the USD following the Fed Chair's dovish comments in his testimony to Congress. The loonie has had an intense trading week, finding support from strengthening commodity prices, the BoC maintaining interest rates at 5%, and the prospect the Fed cut its domestic interest rates by June. Investors have shifted their focus to the US and Canadian crucial jobs data, which should help the respective central banks guide the timing of interest rate cuts. The CAD net change in employment (Feb) is expected to ease to 20k, down from 37.3k previously, and the unemployment rate will rise to 5.8% from 5.7%.

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EURCAD eases on a combination of some weekly profit taking and as investors await the CAD employment rate for guidance on the BoC's next steps.

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EUR holds above 1.0900 amid a weaker USD heading into the US NFP release. Euro holds near 2-month highs, up 1.25% in March against the USD on expectations the Fed will cut its domestic interest rates in Q2/24. Domestically, on Thursday, ECB President Lagarde acknowledged that policymakers have started discussing the timing of reducing interest rates. The ECB President said that policymakers want to be "sufficiently confident" about reaching the inflation goal and added that they would need more data until the June meeting to assess the next policy step. Intraday, the US NFP will provide direction to the single currency today.

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GBPEUR extends gains, strengthening to a fresh three-week high, up nearly 0.5% in March. The pound extends gains on a combination of the prospect of the ECB easing in March and ongoing support from the UK budget on Wednesday.

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GBP extends gains through 1.2850 heading into the crucial US employment data release. The pound continues to extend gains, testing a three-month high on increasing risk-on sentiment and the prospect the BoE will be the last of the major global central banks to keep its interest rates on hold. Markets expect the Fed to cut its domestic interest rates by June, while the BoE is not expected to begin easing its domestic interest rates until August. Inflation in the UK is still the highest compared to other G7 nations due to sticky services inflation driven by robust wage growth. US Jobs data results will be today's primary driver of currency market volatility.