The Morning Update

The USD steadies, oil prices rally, equity markets are down, and US yields are mixed ahead of more central bank activity. The U.S. dollar, euro and pound held steady after the Federal Reserve kept rates on hold, with markets adopting a cautious tone. Attention now turns to today’s decisions by the European Central Bank and the Bank of England, where policymakers are also expected to leave rates unchanged while assessing inflation risks and the impact of ongoing geopolitical tensions. Global equities declined sharply as a renewed surge in oil and gas prices intensified concerns over rising inflation and slowing growth amid the ongoing Middle East conflict. European and Asian markets led losses, while U.S. futures also edged lower, reflecting broader risk aversion. The selloff comes as European gas prices jumped as much as 35% after Iran struck the world’s largest LNG export facility, amplifying fears of a prolonged energy shock. Elsewhere, Brent crude oil surged nearly 10% to $118 per barrel amid escalating tensions in the Middle East and supply concerns. Meanwhile, gold prices fell sharply, and Bitcoin weakened toward $70,000 as investors adjusted to rising energy prices and heightened macro uncertainty. In focus today, the Bank of England and ECB Interest rate decisions will help drive intraday direction in the currency market.

‍In the news. Gas prices surges 25%, and oil hits R116 as strikes rattle markets. The US intelligence chief struggles to avoid contradicting Trump over the war in Iran. Russia considers sending armed naval patrols to protect 'shadow fleet'. Fed Chief Jay Powell says the Iran oil crisis will worsen US inflation. Iran inflicts 'extensive damage' on the site of the world's largest LNG facility in Qatar. Trump ally warns the US economy is not strong enough to cope with an Iran war. Thai parliament backs first conservative PM this century. BoC holds interest rate, but warns of the downstream effects of the Iran war. Alibaba revenue misses estimates in December quarter as net income drops 66%

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‍In currency markets. The Bank of Japan kept interest rates unchanged, maintaining an accommodative stance, while noting that rising energy prices and geopolitical tensions are clouding the inflation outlook and emphasizing the need for sustained wage growth before tightening policy. Meanwhile, the Swiss National Bank also held rates steady, adopting a cautious approach and signalling readiness to intervene in currency markets if needed amid ongoing safe-haven demand for the franc. CNY weakens 0.4%, while Asian currencies on average are flat against the USD. Trading currencies improves, with CHF & KWD down 0.1%, PLN, CZK, & SEK flat, DKK up 0.1%, NOK gains 0.2%, JPY, MXN & AUD advances 0.35%, while NZD & ZAR strengthen 0.5% against the USD.

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In commodity markets. Brent oil rallies 6.8%. Natural Gas prices strengthened 3.6%. Gold prices weaken 4%. Silver prices tumbled 7.7%. Copper prices retreated 2.3%. Coffee prices up 0.3%. Soybean prices firmed 0.4%, and Wheat prices advanced 1.1%.

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CAD held steady in early trading but continued to underperform its G7 peers, even as rising oil prices provided some support amid escalating tensions in the Middle East. The loonie holds the  1.3700 level as markets digested the Bank of Canada’s decision to hold rates at 2.25%, with policymakers striking a cautious tone and highlighting weaker growth prospects alongside rising inflation risks tied to higher energy prices. Governor Tiff Macklem emphasized that the economic impact of the Iran conflict remains uncertain and that future policy decisions will be made on a meeting-by-meeting basis, reinforcing a data-dependent approach.

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EURCAD edged higher in early trading as the euro found support while the Canadian dollar remained relatively soft despite elevated oil prices. The cross is being driven by central bank dynamics, with markets digesting the Bank of Canada’s cautious hold and looking ahead to the European Central Bank decision for further direction.

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EUR continued to find support near the 1.1450 level as markets remained cautious ahead of the European Central Bank policy decision, with investors positioning for a potentially more hawkish tone amid rising energy-driven inflation risks. The ECB is widely expected to keep rates unchanged, with focus on President Lagarde’s guidance on how the Middle East conflict and higher oil prices may impact inflation and future policy.

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GBPEUR is steady in early trading, holding above 1.1550 as markets remain in consolidation ahead of the Bank of England and European Central Bank policy decisions. Both central banks are expected to keep rates unchanged, with investors looking for guidance on inflation and the outlook amid rising energy prices, while UK employment data also remains in focus for near-term direction.

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GBP edges slightly higher in early European trading as investors position cautiously ahead of the Bank of England decision. Markets widely expect the BoE to hold rates at 3.75% while maintaining a hawkish tone, with focus on the MPC vote split and guidance for clues on future tightening. Sterling’s upside remains limited, however, as mixed UK data and broader uncertainties keep conviction subdued.