The Morning Update

The USD is sidelined, oil continues to advance, equity markets turn negative, and US yields rise as the Iran war escalates. The U.S dollar remains sidelined as markets weigh escalating U.S.-Iran tensions, renewed tariff uncertainty and expectations the Federal Reserve will keep rates unchanged later this month. Safe-haven demand, elevated Treasury yields and higher oil prices continue to underpin the greenback, although investors remain reluctant to take on fresh positions ahead of next week's Fed meeting. US futures and European equities turned lower as concerns over escalating AI spending overshadowed strong earnings from Alphabet, while rising oil prices and higher bond yields added to pressure on risk sentiment. Asian technology shares were more resilient, supported by expectations that robust investment in AI infrastructure will continue to drive demand for semiconductors. Oil prices advanced for a fifth consecutive session to their highest level in more than six weeks as escalating Middle East tensions fuel concerns over global supply disruptions, while gold and Bitcoin retreated as rising bond yields and expectations of tighter monetary policy reduced demand for non-yielding and risk-sensitive assets. Today's focus will be on the ECB interest rate decision, EU Consumer Confidence, US Initial Jobless Claims and CAD Retail sales report to guide currency markets.

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News Headlines. Oil jumps to $98 after Houthis attack two Saudi Arabian tankers. The EU fines Google Euro 890 million in test of Trump's threats to protect big tech. Trump Media fast feed for president's post sparks Wall Street backlash. Russia forced to import fuel from India as Ukrainian strikes damage refineries. EasyJet profits tumble as Middle East war hits consumer confidence. The TSX rises to record high, led by energy and mining shares. A US Senator issues blunt appeal to trade czar as tourism tanks: Improve relations with Canada. Canada's homicide rate sees biggest decline since 1986. Iran strikes on CIA facilities prompt questions about possible Russian role.

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In currency markets. Against the USD, currency markets are mixed, with the euro edging higher ahead of today’s ECB decision while the Japanese yen falls to a fresh 40-year low near 163.30. The dollar remains supported by expectations that the Federal Reserve could deliver an interest-rate hike in the fourth quarter, alongside heightened safe-haven demand as the escalating Middle East conflict continues to lift oil prices.

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In commodity markets. WTI +3.60% | Nat Gas +0.82% | Gold -1.44% | Silver -2.20% | Copper -0.78% | Palladium -2.89% | Coffee -0.24% | Cocoa Flat | Soybeans +0.34% | Wheat +0.18%

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CAD holds steady overnight after rebounding from a one-week low, supported by stronger oil prices but with gains capped by ongoing U.S.-Canada trade uncertainty. Attention now turns to today's Canadian retail sales data, where economists expect May sales to rise 1.0%, with another solid reading likely to reinforce evidence that the Canadian economy regained momentum in the second quarter.

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EURCAD remains steady as investors await today's ECB interest rate decision and President Lagarde's guidance on the policy outlook, while attention later shifts to Canadian retail sales for further clues on domestic economic momentum. Rising oil prices continue to provide underlying support for the Canadian dollar, helping to limit upside in the cross.

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EUR holds firm above 1.1400 ahead of today's ECB policy decision, with the central bank widely expected to leave interest rates unchanged. Market focus will be on President Christine Lagarde's guidance for September and beyond, while ongoing Middle East tensions and safe-haven demand for the U.S. dollar could limit further gains in the single currency.

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GBPEUR is holding steady near recent highs as markets await today's ECB policy decision, with investors focused on President Lagarde's guidance for September and beyond. While sterling has been supported by positioning and higher interest rate expectations, ING expects those gains to gradually unwind later this year as UK rate expectations ease and fiscal concerns re-emerge.

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GBP is stable, holding below 1.3400 as softer-than-expected UK inflation reinforces expectations that the Bank of England will leave interest rates unchanged next week. Underlying U.S. dollar strength and ongoing Middle East tensions are also supporting safe-haven demand, limiting upside for sterling.

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