The Morning Update

The USD extends losses, oil prices firm, equity markets are up and US yields rise ahead of the ECB rate decision. Currency markets, global equities, and commodity prices all strengthen as investors wagered the Fed has reached the end of its policy-tightening cycle. The European Central Bank is expected to raise interest rates by 25 bps, leaving the door open for further increases, but increasing evidence of an economic downturn across the EU may press President Lagarde to take a less hawkish stance. The expectation of peaking US & EU interest rates coincides with a robust earning season which has seen more than half of all companies beating analyst estimates, combined has boosted risk-on sentiment. Today alongside the ECB rate decision, the focus will be on the US GDP, Core Personal Consumption Expenditures, Durable Goods, Initial Jobless Claims & Pending Home Sales.

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In other news. China's industrial profits extend double-digit slide on weak demand. Firefighters battle Greece wildfires overnight as far, and factories burn. Ukraine's Zelensky visits Dnipro, and discusses the battle situation. China braces for Typhoon Doksuri's landfall, shutting schools and businesses. The US Secretary of State says the door is open for New Zealand to engage on AUKUS. Canada's Trudeau unveils major cabinet shuffle as poll numbers sag. NATO steps up Black Sea patrols to counter Russian threats to ports and ships.

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In currency news. The USD extends losses as markets expect the Fed will pause further rate increases in 2023. China's yuan extends gains to 2-week highs after the Fed rate decision. Commodity currencies extend gains as risk-on sentiment improves. CNY is up 0.1%, while Asian currencies firm 0.2% on average vs USD. Trading currencies improved with JPY up 0.1%, MXN firming 0.4%, AUD, CHF, SEK, NOK & NZD strengthening 0.55%, and ZAR advancing 0.85% vs USD.

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Oil prices advance to near 3-month highs on tightening supply and improving risk sentiment. The CAD is underperforming its peers amid improving risk-on sentiment and firmer commodity prices. As expectations grow that the Fed could pause further rate increases in 2023, we expect to see support return for the loonie, which we anticipate has room to strengthen through 1.3000. The BoC governor Macklem yesterday said the bank is keeping the door open to raising interest rates in 2023, saying that further adjustments would be taken on a case-by-case basis. Today's focus will be on US GDP to help provide intraday direction to markets.

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EURCAD continues to strengthen heading into the ECB interest rate decision.

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EUR extends gains, retesting 1.1150 ahead of the ECB rate decision and improving risk sentiment. The Euro extends gains for a second day amid broad-based USD weakness and an upbeat mood heading into an expected 25bps rate increase by the ECB. We expect the Euro direction will be predicated on ECB Lagarde's comments, if she ignores recession concerns and maintains a hawkish tone, this has the potential to further strengthen the Euro. Today's focus will be on the ECB's monetary policy decision statement and US GDP to provide intraday direction to the single currency.

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GBPEUR weakens heading into the ECB interest rate decision and the following statement from the ECB president.

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GBP advances towards 1.3000 amid improving risk sentiment and a weakening USD. The pound is heading for a third day and climbs to over a 1-week high near 1.3000. The expectation that the Fed will pause rate increases for 2023 has boosted risk sentiment and increased expectations that the BoE will also adopt a less hawkish tone at its August 3rd. Today we expect to see the pound pause ahead of the ECB rate decision/rate statement and the US GDP data release.

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