The Morning Update

The USD is weaker, oil prices fall, equity markets are mixed, and US yields ease as markets await further Fed testimony and the ECB rate decision. Currency markets hold onto Wednesday's gains as markets brace for a second day of testimony by Fed Chair Powell. Powell didn't take a hawkish tone on Wednesday, sticking to the script that the Fed is in no rush to cut interest rates until policymakers are convinced they have tackled the stubbornly high inflation levels. In Europe, the ECB is expected to keep its interest rates at 4% for a fourth meeting, and ECB President Lagarde is likely to repeat that they need more evidence that inflation is under control. Elsewhere, gold extends gains, testing $2,161.48 an ounce. Oil prices weakened due to increasing Middle East tensions. Bitcoin extends gains to $66,848. China's foreign minister criticized the US for imposing "bewildering" trade restrictions on China as President Biden looks to convince more countries to help reduce access to semiconductor tech. In focus today, Fed Chair Powell 2nd day of testimony, the ECB rate decision, President Biden delivers the State of the Union, US Initial Jobless Claims, and Nonfarm Productivity, will help provide intraday direction to currency markets.

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In other news. The first deaths from Houthi attacks since they began in November saw three ship crew killed. China trade rebounds on electronics and exports to Russia. Czech farmers dump manure on Prague in renewed protests. Senior Russian officer warns Ukraine conflict could escalate into full-scale war in Europe. China Jan/Feb crude imports rise on strong holiday travel demand. The BoC says early signals are showing cooling wage growth in Canada. The EU's climate service says that last month was the world's warmest February of modern times.

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In currency markets. JPY rallies over 1% on growing speculation that the BOJ could finally raise interest rates this month. Euro and USD are steady ahead of the ECB rate decision and the 2nd day of Fed Chair testimony. The Egyptian pound was stable after devaluation, and the country secured an expanded $8 billion program with the IMF. CNY is flat, while Asian currencies strengthen by 0.2% on average compared to USD. Trading currencies extend gains, with MXN, ZAR & SEK up 0.15%, CHF firmed by 0.25%, NZD & NOK gained by 0.5%, AUD strengthened by 0.6%, and JPY rallied by 1% vs USD.

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In commodity markets. Oil prices tumbled 1%, Natural Gas & Wheat prices strengthened by 0.85%, Gold prices are up 0.2%, Silver prices weakened by 0.6%, Copper prices rallied by 1.35%, and Soybean prices gained by 0.75%.

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CAD extends gains, testing 1.3500, hitting two-week highs after the Bank of Canada kept rates on hold, and Governor Macklem said more time was needed to ensure inflation levels meet the bank's 2% target. The governor's comments prompted money markets to reduce their bets of a BoC interest cut before Q3/24, supporting the loonie. Today, without any high-tier CAD economic data, the focus will be on the Fed Chair's 2nd day of testimony to help provide intraday direction to the CAD.

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EURCAD slips on the back of BoC's stance on interest rates and as investors remain cautious ahead of the ECB interest rate decision.

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EUR remains capped at 1.0900 ahead of the ECB policy announcement. Euro holds steady at a six-week high ahead of the ECB interest rate decision, with markets expecting the bank to keep rates on hold and expecting the ECB president to maintain a neutral to keep rates static beyond Q2/24. At the same time, the Euro is finding additional support from a dovish Fed Chair in his testimony to Congress. ECB President Lagarde will speak on policy outlook, with markets expecting her to signal rates will remain on hold until at least June.

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GBPEUR strengthens through 1.1700, finding support from the UK budget on Wednesday and investor caution ahead of the ECB rate decision.

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GBP holds the budget boost but stalls below 1.2800 ahead of the US data. Chancellor Hunt presented the spring budget to the House of Commons on Wednesday. Hunt said he expected growth at 0.8% in 2024, extending to 1.9% in 2025. The Chancellor announced a tax rate cut in employees' National Insurance by 2% to 8% and froze fuel and alcohol duty. The pound found support from a combination of support for the budget and as the USD weakened from perceived dovish comments from the Fed Chair on his first day of testimony. Today is another busy day for markets, with the 2nd day of testimony from the Fed Chair and several high-tier US economic releases that will help provide direction to the pound today.