The Morning Update

The USD slips, oil prices steady, equity markets are mixed, and US yields eased heading to the US GDP & PCE data releases. The USD dips as the risk tone softens ahead of the US Q1 GDP, which is expected to show that economic growth remains firm, forecasted at 2.5% but easing from 3.4% in Q4/23. Investors will also be focused on the Personal Consumption Expenditures Prices Index Q1, which is the Fed's preferred gauge for inflation and will help provide clues on the Fed's interest policy. Equity markets are mixed with a flurry of corporate earnings, while tech stocks led the declines following Meta Platforms Inc.'s disappointing outlook. Elsewhere, Standard Chartered predicts that Bitcoin will reach $150k by the end of the year. Gold prices rose amid a weaker USD, and US yields slipped after rising in the previous session, while oil prices remained steady as ongoing Middle East concerns offset US slowing demand. In focus today, US GDP, PCE, Initial Jobless Claims, and Pending Home Sales will help guide currency markets.

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In other news. Spanish PM considers quitting as his wife faces corruption investigation. Europe turns on China's Nuctech after a decade of awarding security contracts. After Biden signs the aid bill, the Pentagon rushes $1 billion in weapons to Kyiv. England has the highest rates of child alcohol consumption, WHO finds. BHP proposed a GBP 31 billion takeover of Anglo American in a mining mega-deal. Ukraine will increase long-range strikes in Russia, says the UK defense chief. A UK veterinary deal with the EU could boost agrifood exports by 22%. Meta loses $200 billion in value as Zuckerberg focuses on how the company bleeds cash. The Scottish government coalition collapses as the SNP ends power-sharing with the Greens over climate strategy. Venice becomes the first city to charge day-trippers Euro 5 to enter the city.

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In currency markets. JPY extends its losses towards 156.00, testing another fresh 34-year low heading into the Bank of Japan's interest rate decision tomorrow. The GBP rises against the USD and Euro as markets focus on the Bank of England. USD Index eases heading into the US GDP & PCE data today. CNY holds steady while Asian currencies strengthen by 0.2% on average vs. USD. Trading currencies are mixed, with JPY & IDR down by 0.2%, MXN, NOK, SEK & CHF up 0.2%, NZD & AUD strengthening by 0.35%, and ZAR rallying by 1.25% vs. USD.

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In commodity markets. Oil & gold prices are flat; natural gas prices slipped by 0.3%, silver prices increased by 0.15%, copper prices rallied by 1.5%, wheat prices strengthened by 0.9%, and soybean prices weakened by 0.4%.

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CAD recouped some of Wednesday's losses as the USD eased heading into the US GDP and PCE data releases, which should help provide some clues on the Fed's next steps in interest rate policy. Domestically, the retail sales data released on Wednesday showed a surprise decline in retail sales, increasing expectations that the Bank of Canada could cut interest rates as early as June. We remain bearish of CAD vs. USD in Q2 with the increasing expectation of interest divergence between the BoC & the Fed, increasing the potential of a retest of 1.4000. Intraday, the US data releases will drive the direction for the loonie.

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EURCAD continues to edge higher, up 1/2% for April, as pressure on commodity prices and the weakening Canadian economy keep pressure on the loonie.

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EUR holds above 1.0700 amid a weaker USD and caution ahead of the release of crucial USD data. Euro breached through 1.0700 despite an increasing risk-off sentiment, as the euro finds support from the weakening USD heading into the critical US GDP & PCE data releases today. Domestically, the German GfK Consumer Confidence Survey saw a slight improvement m/m, while the French Business Climate in Manufacturing in April missed expectations, coming in at 100 vs 103 in March. Investors expect the ECB to remain on track to lower its interest rates as early as June. The US data releases will provide direction for the euro today.

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GBPEUR continues its bullish trend, which has seen the pound rally from a 1.1557 low on the 23rd to 1.1675 today. The pound benefits from the prospect that the BoE will keep domestic interest rates on hold beyond June.

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GBP extends its recovery, breaking through 1.2500 as investors shift their focus to the US data releases today. Despite softening risk sentiment, the pound benefits from the weakening USD and hawkish BoE comments. Domestically, there are no key UK data releases on Friday or next week, so the pound will be dependent on the US & EU economic data releases to provide direction for the pound. Intraday, the US GDP & PCE will give direction to the pound. In the bigger picture, we feel the pound has room to strengthen vs the euro in Q2, but gains will be limited vs. the USD based on the longer-term divergence in domestic interest rates.