The Morning Update

The USD steadies, oil prices firm, and equity markets are mixed, while US yields ease ahead of the jobs, retail, and inflation reports. The USD steadies against its G10 peers, holding near multi-week lows as expectations grow that the Fed will cut interest rates at its September meeting. Global equities remain mixed, staying near record highs, driven by continued risk-on sentiment, as investors await new economic data to gauge how aggressively the Fed might cut interest rates. Today's US producer prices are expected to show an uptick in inflation, while Friday's retail sales will offer insight into the health of the US consumer as the US job market comes under pressure. Today's data "could be make or break to cement a 25 basis-point rate cut from the Fed, or even to encourage the possibility of a jumbo cut," said Andrea Gabellone, at KBC Securities. "People are already speaking of a 50 basis-point cut, but I think we will need further labour data to shift the narrative." Elsewhere, Bitcoin eases after testing a new record high $124,002 as bets on Fed easing provide underlying support. Oil prices firm in early trading, but face further selling pressure as US output peaks. In focus today are US initial jobless claims, the producer price index excluding food & energy, and the Fed's Musalem speech, which will help provide intraday direction to currency markets.

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In the news. Trump threatens 'very severe consequences' if Putin refuses to end the Ukraine war. Bitcoin extends summer rally to hit record high. China pharma firms turn to local reagent suppliers to cut costs and delivery times. S&P upgrades India for its economic resilience and sustained fiscal consolidation. Scotiabank lays off investment bankers in the US and Asia Pacific. China to send top envoy to India as ties warm after the US tariffs. Eurozone industry contracts more than expected in June, but GDP holds steady. Lithium rally promises a breather for struggling Australian miners. UK economic growth slows to 0.3% in Q2. Air Canada to start cancelling flights as flight attendants threaten to strike on Saturday.

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In currency markets. The Japanese yen strengthened after US Treasury Secretary Bessent suggested that the Bank of Japan needs to raise rates again soon. The Norwegian Central Bank has kept rates on hold, but markets expect a rate cut later in 2025. CNY is flat, while Asian currencies slip 0.1% on average against the USD. Trading currencies come under pressure, with NZD tumbling 0.5%, PLN, CZK, ZAR, AUD, and SEK weakening 0.4%, MXN, CHF, and DKK easing 0.2%, KWD flat, and outlier JPY rallied 0.4% against the USD.

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In commodity markets. Oil firmed 0.5%. Natural Gas prices tumbled by 1.9%. Gold prices are flat. Silver, Wheat and Soybean prices falling 0.5%, and copper prices easing 0.25%.

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CAD eases in early trading, holding within recent ranges as investors shift their attention to the US PPI report, with markets seeking validation of a Fed rate cut in September. Wednesday's release of the Bank of Canada's minutes revealed that policymakers were divided on the need for further interest rate cuts. Policymakers were divided on how much monetary policy could aid growth under the current economic conditions, which are shaped by US tariffs. Despite the split by BoC policymakers, markets are only pricing in a 33% chance of a BoC rate cut at its next meeting in September. Intraday, with the absence of the Canadian economic data releases, investors will be monitoring the US Jobs and PPI to provide direction to the loonie.

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EURCAD holds steady at 1.6100 with investors sidelined ahead of the US data releases.

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EUR slips after the eurozone industrial production contracts and focus shifts to the US inflation report. The euro dropped below 1.1700 after the eurozone industrial production fell more than expected to -1.3% in June (month-over-month) and to 0.2% year over year, down significantly from the 1.7% expected. On a positive note, EU employment held steady at 0.7%, and EU GDP met expectations at 1.4%. Intraday, the focus shifts to the US PPI, which is being monitored closely to validate the expected Fed rate cut in September.

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GBPEUR firms amid a softer euro driven by weakening industrial growth, while the pound finds support on stronger GDP and manufacturing growth.

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GBP holds on to multi-week gains, holding above 1.3550 as risk-on sentiment continues. The pound finds support following stronger-than-expected GDP growth, posting 1.2% year-over-year growth in Q2, versus the forecasted 1% growth. Elsewhere, Industrial and manufacturing growth also beat expectations, but UK goods exports to the US fell at a 3-year low in June. Investors will be shifting their focus to the US PPI report. If it's perceived as positive, supporting a Fed rate cut, we could see the pound extend gains through 1.3600.