The Morning Update

The USD firms, oil prices weakened, equity markets and US yields are mixed as markets consolidate. The USD firmed in early trading, recovering from recent lows against its G10 peers. Investors are looking for fresh catalysts after the Fed’s rate cut, with attention on the upcoming Bank of Japan meeting and key U.S. data next week, including nonfarm payrolls and ISM surveys, for further direction. Asian equities declined after the Bank of Japan announced plans to start selling its large exchange-traded fund holdings, while keeping its policy rate unchanged at 0.5%. In the U.S., stock futures are steady following record closes across the S&P 500, Nasdaq 100, Dow Jones, and Russell 2000, as investors looked past Friday’s $5 trillion options expiry and instead awaited the upcoming nonfarm payrolls report for direction. Markets ended a busy week on a calmer note, after the Federal Reserve’s first rate cut in a likely series fueled fresh all-time highs.“It’s clear the Fed is willing to support growth and the jobs markets, versus caring too much about inflation, though we have to see how that translates into the economy,” said Andrea Gabellone, head of global equities at KBC Global Services. “Financial conditions are now easier.” Elsewhere, oil prices eased as U.S. demand concerns outweighed support from the Fed’s rate cut, though benchmarks are still set for weekly gains. Bitcoin slipped to $116,500 on liquidation pressures, while gold pushed towards $3,700 an ounce on strong central bank demand and inflation worries. In focus today, CAD Retail Sales and Fed's Daly Speech will help provide direction to currency markets today.

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In the news. Nvidia in talks for $500mn investment in UK self-driving start-up Wayve. US senators seek to raise pressure on Russia with 'shadow fleet' sanctions. Japanese stocks sell off as the BoJ unveils plan to unwind $250bn of EFTs. China's rival to Amazon battles to go global after failed UK bids. France take to the streets against new premiers's budget plans. The World bank seeks to boost firepower by offloading loan risk to investors. Carney and Sheinbaum sign deal to deepen economic ties between Canada and Mexico. China seeks trade edge, shunning US Soy in first since 1990s. The US casts 6th veto at the UN over war in Gaza.

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In currency markets. The USD eased against the yen after the Bank of Japan held rates steady but surprised markets by announcing plans to sell some of its massive ETF holdings. While the USD strengthened against the CHF and SEK, against the South African rand, the dollar was little changed after the SARB kept rates on hold, leaving traders focused on upcoming local data. CNY is flat, while Asian currencies eased by 0.1% on average against the USD. Trading currencies came under pressure, with SEK weakening 0.5%, CHF, NOK, PLN, and DKK fell 0.25%, AUD, NZD & CZK eased by 0.15%, JPY, MXN, KWD and ZAR are flat against the USD.

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In commodity markets. Oil prices weakened by 1%. Natural Gas prices eased 0.55%. Gold prices gained by 0.3%. Silver prices strengthened by 1%. Copper, Wheat and Soybean prices are flat.

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CAD eased in early trading, holding above 1.3800 as investors digested contrasting signals from the Bank of Canada and the Federal Reserve. The BoC cut rates to 2.5%, its lowest in three years, and signaled readiness to ease further if needed, while Fed Chair Jerome Powell struck a firmer tone despite also lowering rates. The divergence left the loonie vulnerable to U.S. dollar strength, compounded by a 0.9% drop in oil prices and a Canada-U.S. 10-year yield spread widening to nearly 92 basis points. With retail sales due next, a weaker-than-expected reading would underscore fragile domestic demand and could add further downside pressure on the Canadian dollar.

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EUR/CAD slipped in early trading as the euro came under pressure, while the Canadian dollar found some support despite being vulnerable to weakening oil prices. Traders remain cautious ahead of Canadian retail sales data due today, expected at -0.8%, which could provide the next key driver for the pair.

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EUR remained under pressure on Friday, holding below 1.1800 as a firmer U.S. Dollar drew support from stronger-than-expected jobless claims and manufacturing data. The pair traded around 1.1765, extending a third day of losses after retreating from four-year highs earlier in the week. Political unrest in France has further weighed on the euro, while ECB’s Centeno reiterated that the next policy move is likely to be a rate cut, reinforcing downside risks for the currency. Traders are also watching upcoming ECB commentary and geopolitical headlines, including a Trump-Xi call, for fresh direction.

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GBPEUR edged lower as markets focused on surging UK public sector borrowing, which hit £17.96 billion in August, its highest in five years. The pound stayed under pressure as fiscal concerns outweighed the boost from stronger-than-expected retail sales.

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GBPUSD came under pressure after UK data showed public sector net borrowing jumped to nearly £18 billion in August, the highest for that month in five years and well above expectations. The sharp rise in borrowing stoked fiscal concerns and weighed on sentiment toward the pound. UK retail sales surprised to the upside, rising 0.5% on the month, but the improvement offered only limited relief. Broader market focus on a potential Trump-Xi meeting has also lent support to the dollar, as investors brace for possible trade or geopolitical implications.