The Morning Update

The USD eases, oil prices weaken, equity markets are up, and US yields rise with attention fixed on the looming government shutdown and the Fed’s rate outlook. The USD fell in early trading as worries over a possible U.S. government shutdown weighed, with the yen outperforming the euro ahead of key economic data. This marked a reversal from last week, when stronger U.S. figures lifted the greenback and trimmed Fed rate-cut bets. Global equities opened the week on a firm footing, buoyed by expectations that upcoming U.S. labour market data will strengthen the case for Fed rate cuts. In the U.S., S&P 500 futures rose 0.5%, setting the benchmark on track for its strongest September in over a decade, while Europe’s Stoxx 600 gained 0.3% led by industrials and financials. Asian markets followed suit, with Hong Kong’s Hang Seng rallying nearly 2% and broader regional gauges advancing, reflecting improved risk appetite. The momentum in markets is “driven by a Goldilocks environment of optimistic growth prospects alongside expectations of a more dovish Fed,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “There might be some adverse effects if the shutdown were to prevail for a longer period, which is not our base case.” Elsewhere, oil prices slid on OPEC+ oversupply, while gold surged past $3,800 an ounce on demand for a haven asset, and Bitcoin rallied to $112,100. Investors are now focused on a busy week of U.S. data, culminating in Friday’s nonfarm payrolls report, with the risk of a government shutdown adding to uncertainty. Today sees a light economic calendar, so focus will be on a flurry of Fed speakers, the BoE's Ramsden, and the ECB's Lane's comments to help drive intraday direction in currency markets.

‍

In the news. Gold punches through $3,800 an ounce as risk of US shutdown rattles markets. First Brands files for bankruptcy, threatening multibillion-dollar losses. AI groups bet on world models in race for 'superintelligence.' Pro-EU party wins Moldova's parliamentary election. China's new K visa beckons foreign tech talent as the US hikes H-1B fee. Trump to push proposal for elusive Gaza peace in Netanyahu talks. As China explores the Arctic, Canada's military is preparing for confrontation. Covid-19 vaccine campaigns launch across Canada for 2025-26. Canada Post operations not 'viable,' Carney says amid strike action.

‍

In currency markets. The Indian rupee is holding near record lows against the U.S. dollar as steady demand for the greenback and policy concerns weigh, though central bank support has slowed deeper losses. Against the yen, the dollar slipped 0.6% towards 148.50 after last week’s sharp gains, with investors watching for further BoJ tightening as policymakers signal a hawkish shift and analysts at Jefferies call for more rate hikes. CNY gains 0.2%, while Asian currencies, on average, remain flat against the USD. Trading currencies mostly rebounded, with  SEK down 0.2%, CZK, NOK, KWD & CHF flat, MXN & DKK up 0.1%, NZD and ZAR gains by 0.25%, and JPY & AUD strengthened by 0.5% against the USD.

‍

In commodity markets. Oil prices tumbled by 1.8%. Natural Gas prices up by 0.3%. Gold & Silver prices strengthened by 0.9%. Copper prices firmed by 0.8%. Coffee prices rallied 2%. Wheat prices were up 0.2% and Soybean prices fell 0.35%.

‍

CAD is flat in early trading after posting its most significant weekly decline since February, falling over 1% to 1.3958 against the USD despite stronger-than-expected July GDP growth. Canada’s economy expanded 0.2% in July, rebounding from three months of contraction, though advance estimates pointed to flat growth in August. Strategists highlighted the U.S. dollar’s broad rally, widening U.S.–Canada yield spreads, and softer risk appetite as key drivers of CAD weakness. Looking ahead, the focus this week will be on Friday's US NFP, Canada’s Manufacturing PMI and the Bank of Canada’s Summary of Deliberations for fresh policy signals.

‍

EURCAD gains in early trading, holding near multi-year highs of 1.6359, and is expected to move higher as loonie softness, ongoing US/CAD trade concerns, and technical momentum support further euro strength.

‍

EUR extends gains in early trading, consolidating above 1.1700, holding modest gains after rebounding from last week’s 1.1645 lows as investors weighed the risk of a looming U.S. government shutdown. President Trump is set to meet congressional leaders in a last-ditch effort to avert the closure, though chances of an agreement appear slim. Eurozone sentiment data showed only slight improvement, with consumer confidence well below average and services sentiment weakening further. Market fears of a shutdown, combined with expectations for back-to-back Fed rate cuts, kept the dollar in a defensive stance. Attention now turns to upcoming remarks from ECB and Fed officials, which could shape near-term direction for the pair.

‍

GBPEUR is up in early trading, with sterling finding support as markets pare back BoE rate-cut bets and focus shifts to upcoming UK data. The move reflects a modest rebound in confidence toward the pound, even as sentiment toward the euro remains steady.

‍

GBP firmed in early trade, regaining ground after a period of weakness driven by sluggish UK growth and stretched public finances. Cable has so far held support near 1.3300, with markets now eyeing the Labour Party conference in Liverpool, where policy signals could sway gilts and sterling sentiment. Should the currency emerge unscathed from the political backdrop, upcoming commentary from Bank of England officials, including Governor Andrew Bailey, may provide an additional lift. Attention will also turn to U.S. labour market data later in the week, a key driver for dollar moves.