The Morning Update

The USD hold steady, oil prices rally, equity markets are down, and US futures rise as hopes for a Hormuz deal falter. The U.S. dollar held steady as investor concerns increased after fresh exchanges of strikes between the U.S. and Iran cast doubt over prospects for a near-term Hormuz agreement. Markets remain cautious as geopolitical tensions continue to support safe-haven demand for the greenback, while investors also await today’s key U.S. interest rate report for further direction on Federal Reserve policy expectations. Global equity markets weakened as risk-on sentiment faded and investor optimism surrounding potential U.S.-Iran peace talks eased following renewed military tensions. Markets turned more cautious amid concerns that prolonged uncertainty over the Strait of Hormuz and broader geopolitical risks could weigh on global growth, inflation expectations, and central bank policy outlooks. Elsewhere, oil prices remained under pressure as markets continued to weigh fragile U.S.-Iran peace negotiations and the possibility of the Strait of Hormuz reopening, despite ongoing geopolitical tensions in the region. Gold and bitcoin prices also weakened as investors reduced defensive positioning and broader market volatility eased modestly. Today sees a busy economic calendar, with the key Core PCE Price Index, US Durable Goods, US GDP, Initial Jobless Claims, Personal Income & Spending, and speeches from the BoE, ECB & the Fed that will help drive intraday direction in currency markets.

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News Headlines. European defence stocks rally after Ukraine ratifies a $105 billion EU loan deal. US and Iran exchange fire amid an increasingly strained truce. Russian Rouble's strength piles pressure on the Russian war economy. The EU must change its accession system to cater for Ukraine, enlargement chief says. Trump says rising economic costs will not force him into Iran deal. Israel ratchets up its offensive against Hezbollah in Lebanon. Royal Bank of Canada's quarterly profit rises on trading boost. US & Mexico launch formal trade talks, haggle over automotive content rules. Canada's proposed Ksi Lisims LNG facility in talks to supply 'several' EU Utilities, Western LNG CEO says.

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In currency markets. Against the USD, major currencies eased as investors turned more cautious amid renewed geopolitical tensions and fading optimism surrounding U.S.-Iran negotiations. Markets also remained focused on today’s key U.S. inflation report, with traders reassessing expectations for the Federal Reserve’s policy path.

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In commodity markets. Oil prices strengthened 1.8%. Natural Gas prices retreated 1%. Gold prices weakened 1.3%. Silver prices tumbled 1.6%. Copper prices slipped 0.1%. Coffee prices rallied 2.6%. Soybean prices gained 0.6%, and Wheat prices firmed 0.3%.

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‍CAD slipped to a fresh six-week low against the U.S. dollar as investors weighed growing USMCA headline risk and ongoing uncertainty surrounding U.S.-Iran negotiations. Markets also remained cautious ahead of today’s key U.S. inflation report and Friday’s Canadian GDP data, both of which could provide further direction for Federal Reserve and Bank of Canada policy expectations.

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EURCAD extended gains toward 1.6100 as ECB-BoC policy divergence, ongoing geopolitical uncertainty, and broader pressure on the Canadian dollar continued to support the pair. However, investors remain cautious ahead of Friday’s key Eurozone inflation data and Canadian GDP report, both of which could significantly influence ECB and Bank of Canada policy expectations.

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EUR remains under pressure near the 1.1600 level as renewed tensions in the Middle East and escalating exchanges between the U.S. and Iran continue to bolster safe-haven demand for the U.S. dollar. Investors also remain cautious ahead of today’s key U.S. Core PCE inflation report and Friday’s German Harmonized Index of Consumer Prices (HICP) data, both of which could provide further direction for Federal Reserve and ECB policy expectations.

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GBPEUR edged lower but remained above 0.8650 as the euro continued to find support from growing ECB-BoE policy divergence and expectations for a June ECB rate hike. However, rising Middle East tensions and renewed exchanges between the U.S. and Iran tempered broader risk sentiment, with investors also watching closely for further comments from ECB President Christine Lagarde.

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GBP slipped toward 1.3400 as renewed U.S.-Iran tensions boosted safe-haven demand for the U.S. dollar and weighed on broader market sentiment. Investors also remained cautious ahead of today’s key U.S. Core PCE inflation report, while softer UK inflation data and fading expectations for near-term Bank of England tightening continued to limit support for sterling.