The Morning Update

The USD eased, oil prices firm, equity markets and US yields are mixed amid Iran-US cease fire concerns. The USD eases toward two-month lows as a run of softer U.S. economic data, including weaker retail sales and inflation readings, reduces the probability of a September Fed rate hike to around 30%. However, ongoing U.S.-Iran uncertainty and the unresolved Strait of Hormuz situation continue to provide underlying safe-haven support for the dollar. Global equity markets are mixed, although markets are finding support from technology shares as strong AI demand and earnings reinforce optimism around the sector. Underlying caution persists, however, as the U.S.-Iran ceasefire expires today with negotiations stalled, keeping geopolitical risks firmly in focus. Elsewhere, oil, gold and Bitcoin are in positive territory. Oil remains supported by persistent U.S.-Iran tensions and risks surrounding the Strait of Hormuz, while gold benefits from a weaker U.S. dollar and reduced Fed rate-hike expectations; Bitcoin also edges higher as declining U.S. rate expectations support risk appetite. In focus today: Markets will be watching Canadian CPI inflation, including the core readings, alongside the U.S. Empire State Manufacturing Index, with the releases expected to provide fresh direction for currency markets.

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News Headlines. The Strait of Hormuz shipping grinds to a halt ahead of US-Iran ceasefire expiry. Japanese automakers vulnerable to the one-two punch of Iran war, and yen rally. Trump orders Pentagon to cut back military exercises with South Korea. Most US voters say they are worse off under Trump - FT poll. Ukraine presses drone attacks on Moscow and Russian logistics. Japanese second-quarter growth weaker than expected. China investment slump deepens as economy shows signs of weakness. Canadian farmers fight heavy disease threat as harvest approaches. Canadian Minister says Canada and the US are far apart on draft trade deal.

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In currency markets. Against the USD, the AUD and NZD are today’s strongest performers, benefiting from broad U.S. dollar weakness as softer U.S. data continues to reduce expectations for further Fed tightening. The Aussie is additionally supported by the RBA’s relatively hawkish stance and the possibility of another rate hike, while the Kiwi benefits from expectations for further RBNZ tightening, helping both currencies overcome softer Chinese data

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In commodity markets. WTI +0.89% | Nat Gas -2.74% | Gold +0.33% | Silver +0.82% | Copper +1.17% | Palladium +0.34% | Coffee +2.16% | Cocoa +2.29% | Soybeans +0.59% | Wheat -0.47%

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CAD holds near a two-month high against the USD, starting a fourth consecutive week of gains as softer U.S. data and reduced Fed rate-hike expectations continue to narrow U.S.-Canada yield spreads. Higher oil prices are providing additional support, while markets now turn to Canadian CPI for guidance on the Bank of Canada outlook. Headline inflation is expected to edge up to 2.9% from 2.8%, but underlying inflation is forecast to remain relatively contained, potentially reinforcing expectations that the BoC can remain on hold.

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EURCAD extends its gains in early trading, moving back above 1.6050 as the loonie is overshadowed by renewed Canada-U.S. trade concerns ahead of Wednesday’s threatened 50% U.S. tariffs on nearly US$20 billion of Canadian imports. Intraday focus will also be on Canada’s July inflation report, with headline CPI expected to edge up to 2.9% from 2.8%, while underlying inflation is expected to remain contained below 2%, an outcome that could reinforce expectations for an extended Bank of Canada pause.

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EUR extends its gains against the U.S. dollar, retesting the 1.1600 level as softer U.S. data reduces expectations for further Fed tightening. Attention turns to ECB President Christine Lagarde’s speech later this week, although caution persists ahead of developments surrounding the U.S.-Iran ceasefire, with geopolitical and energy-price risks remaining elevated.

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GBPEUR holds steady around the 1.1700 level in early trading, with sterling supported by resilient UK growth and expectations that persistent inflation could keep the Bank of England relatively hawkish. Attention turns to this week’s UK employment and inflation data, while expectations for further ECB tightening and President Lagarde’s upcoming comments provide underlying support for the euro.

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GBP advances against the U.S. dollar, trading above 1.3550 and near a three-month high as weaker U.S. retail sales, jobs and inflation data reduce the probability of a September Fed rate hike to around 30%. Sterling is also supported by resilient UK growth and relatively hawkish BoE expectations, with UK employment data on Tuesday and inflation figures on Wednesday the next key domestic catalysts.

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