The Morning Update

The USD is flat, oil prices slipped, equity markets and US yields are mixed amid ongoing trade uncertainty. The USD holds steady, with optimism about trade deals with the EU and China, increasing expectations for Fed easing in Q3. Money markets are now forecasting a 92.4% chance the Fed will cut interest rates at their September meeting. US futures strengthened in early trading following Canada's rescinding its digital service tax, this after US equities hit an all-time high last week on reduced geopolitical tension and a resilient economy. European equities dipped in early trading as investors turned cautious ahead of the EU/US trade deadline on July 9th. Meanwhile, negotiations over Trump's tax-cut bill are continuing as Republicans seek to convince holdouts to support it for the final passage. The nonpartisan Congressional Budget Office estimates the measure would add nearly $3.3 trillion to US deficits over a decade, weighing on the greenback. Elsewhere, oil prices slipped on the prospect of more OPEC+ supply and easing risks in the Middle East. Bitcoin holds steady at $107.5k, while silver prices ease and gold prices firm. In focus this week. Monday, German CPI and ECB Lagarde Speech. Tuesday, Canadian Holiday, Fed Chair Powell speech. EU CPI, BoE Governor Speech, US ISM Manufacturing PMI. Wednesday, US ADP Employment Change. Thursday, Average Hourly Earnings, NonFarm Payrolls, and ISM Services PMI. Friday, US Holiday, German Factory Orders, and EU PPI will help drive currency direction this week.

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In other news. Canada rescinds digital services tax to advance trade talks with the US. The Senate will vote on amendments to Trump's 'big, beautiful bill.' Temperatures reach dangerous highs as 'heat domes' hit Europe and the US. The deal that US tariffs on UK cars and aircraft parts come into effect today. Indonesia offers the US an opportunity for a joint investment in critical minerals as part of tariff talks. German retail sales fall unexpectedly in May. The UK economy grew at its fastest pace in a year in the first quarter, but is expected to slow.

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In currency markets. The USD remains on the back foot against the euro, holding near almost four-year lows. The Taiwan Dollar plunged 2% against the USD, prompting speculation about central bank intervention to curb the strength in the currency. CNY and Asian currencies, on average, are up 0.1% against the USD. Trading currencies are mixed, with NOK tumbling 0.6%, SEK weakening 0.45%, MXN & CHF down 0.2%, AUD & DKK flat, JPY & ZAR firmed 0.2% against the USD.

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In commodity markets. Oil and copper prices are down 0.3%. Natural Gas prices tumbled 3.5%. Gold prices firmed 0.35%. Silver prices eased 0.15%. Wheat prices fell by 0.4%, and Soybean prices rose by 0.1%.

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CAD prices hold below 1.3700 in early trading, rebounding from Friday's lows of 1.3760 after Canada ditches its tax on US tech giants in a bid to restart the US trade talks. We anticipate the loonie will remain sidelined today with the lack of US or Canadian economic data releases and quieter markets heading into the Canada Day holiday. This week's focus will be on U.S. President Trump's comments following Canada's decision to rescind the digital services tax.

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EURCAD advances in quiet trading as the loonie remains on the back foot after Trump walked away from the US/Canada trade deal.

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EUR holds steady above 1.1700 with investors focused on today's German inflation report. The euro continues to consolidate above 1.1700 amid ongoing USD weakness, driven by increased speculation of a Fed September rate cut and ongoing Trump attacks on Fed Chair Powell. Domestically, German Retail Sales fell by 1.6% on m/m basis, following the 0.6% contraction in April. On Sunday, French Finance Minister Lombard said that he thinks they will reach a trade deal with the US. The focus will be on the German Harmonized Index of Consumer Prices (HICP) report, which is expected to rise to 2.2% from 2.1%.

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GBPEUR is sidelined, holding below 1.1700 with investors focused on the German inflation report.

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GBP consolidates near multi-year highs, straddling near 1.3700 with month-end trading. The pound holds onto a fourth consecutive trading session of gains, testing close to three-year highs amid sustained USD weakness, with increasing expectations of Fed easing in September. Domestically, the UK GDP remained steady at 1.3% year-over-year (y/y) in Q1, growing 0.7% quarter-over-quarter (q/q) in Q1. Focus has shifted to the Bank of England, Bailey comments as he participates in a policy panel with other central bankers at the ECB Forum on Central Banking 2025 in Portugal.