The Morning Update

The USD is flat, oil prices have rallied, equity markets are up, and US yields are rising amid mixed market sentiment. The U.S. dollar remains under pressure near multi-year lows as investors price in policy uncertainty and rising concerns over Federal Reserve independence. Support from Treasury comments reaffirming a “strong-dollar policy” and expectations that rates will remain on hold have provided only limited relief. As a result, USD performance remains highly sensitive to political and institutional risks, which continue to dominate near-term sentiment. Global equities moved higher, led by technology stocks as megacap companies stepped up spending on AI infrastructure, supporting gains in Nasdaq and S&P 500 futures. While strong investment plans reinforced confidence in long-term growth, mixed earnings reactions highlighted ongoing investor scrutiny over returns on elevated capital expenditure. Broader risk sentiment was supported by a weaker U.S. dollar, though inflation risks and geopolitical tensions continue to cap upside. Elsewhere, oil and gold prices are rallying as investors rotate into commodities amid a weaker U.S. dollar and persistent macro and geopolitical uncertainty. In contrast, Bitcoin has lost momentum, slipping below $88,000. underperforming traditional hard-asset havens. Today sees a light economic calendar, with focus on US Initial Jobless Claims, Nonfarm Productivity, and US Factory Orders to help provide intraday direction for currency markets.

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In the news. Starmer signals China reset in talks with Xi, eyes economic wins. Trump warns Iran to make nuclear deal or next attack will be 'far worse'. Tesla scraps models in pivot to AI as annual revenue falls for first time. OpenAI is in talks to raise $40bn in investments from Nvidia, Amazon and Microsoft. Copper leads scorching metals rally amid global uncertainty. Russian oil income drops sharply as sanctions bite. Carlyle strikes tentative deal to buy Lukoil's international assets. Ottawa and South Korea are in talks to bring auto manufacturing to Canada. Carney is meeting with Canada's premiers in Ottawa today.

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In currency markets. Against the U.S. dollar, the Swiss franc remains near multi-year highs, supported by strong safe-haven demand amid geopolitical uncertainty and continued USD weakness. The Swedish krona has also firmed, underpinned by the Riksbank’s decision to keep rates on hold at 1.75% and signal policy stability, helping stabilize SEK against the dollar. CNY is flat, while Asian currencies eased 0.2% on average against the USD. Trading currencies come under pressure, with SEK weakening 0.45%, ZAR  & CZK weakening 0.35%, PLN, DKK, & CHF falling 0.3%, JPY down 0.2%, MXN, KWD, AUD, & NOK flat, while NZD up 0.1% against the USD.

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In commodity markets. Oil prices gained 1.85%. Natural Gas prices advanced 2.6%. Gold prices strengthened 3.6%. Silver prices surged 3%. Copper prices rallied 6.4%. Coffee prices up 0.25%, while Soybean prices climbed 0.6%, and Wheat prices appreciated 1.2%.

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CAD has strengthened against the U.S. dollar, pushing USD/CAD down toward 1.3550, its lowest level since October 2024. CAD strength has been supported by a rally in crude oil prices to four-month highs, driven by geopolitical risks, strong Chinese demand, and lower U.S. inventories. The Bank of Canada’s decision to hold rates has had little impact on the currency, leaving oil prices as the key driver. Meanwhile, the U.S. dollar remains under pressure from policy uncertainty, concerns over Fed independence, and expectations for rate cuts in 2026.

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EURCAD remains under pressure as the loonie continues to benefit from strengthening commodity prices, particularly oil, alongside a steady Bank of Canada policy stance. Meanwhile, the euro is losing momentum amid growing concern from ECB and EU officials over excessive currency strength and its impact on inflation and export competitiveness.

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EUR eased in early trading, drifting below 1.1950 as modest U.S. dollar demand resurfaced and gains stalled just below four-year highs. Growing unease among ECB and EU officials over the impact of euro strength on inflation and competitiveness continues to cap upside. German Chancellor Friedrich Merz reinforced these concerns, warning that a weak dollar and strong euro are placing a significant burden on Germany’s export-driven economy. Meanwhile, a “hawkish hold” from the Federal Reserve and renewed strong-dollar rhetoric have helped cap the below 1.2000.

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GBPEUR is flat in early trading, holding steady as markets await fresh catalysts. Sterling lacks near-term drivers with the Bank of England expected to hold rates in February, while the euro remains supported by cautious ECB rhetoric and a flexible policy stance. Focus now turns to Friday's Eurozone and German GDP data, which could drive a break beyond current ranges.

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GBP continues under pressure, slipping back through the 1.3800 level in early trading as renewed U.S. dollar demand weighs on the pair. Support for the greenback has come from upbeat commentary from Fed Chair Powell and Treasury Secretary Bessent, keeping USD sentiment firm ahead of U.S. Jobless Claims data. While strong UK data has helped limit downside, near-term price action suggests GBP/USD remains vulnerable to further consolidation below recent highs.