The Morning Update

The USD firms, oil prices rally, equity markets are mixed, and US yields gain amid rates and inflation concerns. The U.S. dollar extended gains as Treasury yields pushed higher, with the 10-year yield reaching its highest level since 2002 amid persistent inflation concerns and expectations for further Fed tightening. Elevated energy prices and resilient U.S. growth continue to reinforce the higher-for-longer rate outlook, keeping the dollar firmly supported. Global equity markets were mixed as surging bond yields continued to pressure risk appetite, with U.S. futures mixed, European markets lower and Asian shares generally higher. The broader bond selloff and elevated borrowing costs weighed on rate-sensitive sectors, although strong Micron results continued to support technology and AI-related shares. Elevated oil prices and persistent inflation concerns remain key risks as investors reassess the outlook for further Fed tightening. Elsewhere, oil prices rallied as renewed Middle East tensions and lingering supply risks lifted crude, while gold and bitcoin held broadly steady as investors balanced elevated yields against ongoing geopolitical uncertainty. Today’s economic calendar includes Canadian S&P Global Manufacturing PMI, U.S. initial jobless claims and ISM Manufacturing PMI, alongside a flurry of Fed speakers, ECB President Lagarde and BoE’s Mann.

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News Headlines. 10-year Treasury yield hits highest level since 2002 as global bond rout gathers pace. Oil prices rise as Chinese refiners reportedly ban October fuel exports. Russia launches massive strikes on Ukraine's power grid ahead of winter. Morocco's first female prime minister launches coalition talks. AI agents tried to hack a Canadian government website, research firm says. The US slows aircraft-part exports to China as Trump seeks leverage in trade negotiations. Unease in Alberta deepens as Carney stares down vote to separate. Transurban buys C$3.1 billion toll roads from Canada Pension.

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In currency markets. Against the USD, MXN weakened as rising U.S. yields reduced Mexico’s relative carry advantage, while uncertainty around delayed U.S.-Mexico trade talks and unresolved tariff issues added further pressure. ZAR also weakened as higher global yields and tighter financial conditions weighed on emerging-market currencies, with the rand particularly sensitive to shifts in global risk appetite.

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In commodity markets. WTI +1.74% | Nat Gas -2.51% | Gold +0.04% | Silver +0.48% | Copper -1.23% | Palladium -2.22% | Coffee -1.26% | Cocoa -4.19% | Soybeans -0.19% | Wheat +0.59%

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CAD continues to test multi-month lows as a combination of a firm U.S. dollar, widening Canada-U.S. yield differentials and persistent trade uncertainty keeps the loonie under pressure. The recent escalation in U.S.-Canada tariffs and import restrictions has added to concerns over the domestic growth outlook, while political uncertainty surrounding Alberta’s referendum debate is another modest confidence headwind. Oil prices have been volatile rather than providing consistent support, leaving CAD especially sensitive to rate spreads and broader risk sentiment. Attention now turns to Friday’s U.S. nonfarm payrolls, where another strong jobs report could reinforce expectations for further Fed tightening and extend pressure on the loonie.

EURCAD eased in early trading as renewed euro weakness outweighed lingering pressure on CAD. The euro remains weighed by softer regional data, fiscal concerns in France and a firmer U.S. dollar, while today’s Eurozone unemployment report and a heavy schedule of ECB speakers, including Lagarde and Schnabel, are in focus for fresh policy guidance. On the Canadian side, recent GDP data showed the economy holding up modestly better than feared, while firmer oil prices are offering CAD some support.

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EUR remains under heavy pressure near 17-month lows, trading below 1.13 for the first time since May 2025 as higher energy costs, rising Eurozone inflation, political uncertainty and renewed stress in European bond markets weigh on sentiment. The broader move also reflects sustained USD strength, with the dollar having posted six consecutive quarterly gains against its currency basket, the longest such run since 2022. Attention today turns to ECB President Lagarde for guidance on how policymakers are balancing persistent inflation against weakening growth risks, while caution remains ahead of tomorrow’s key U.S. nonfarm payrolls report.

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GBPEUR was broadly flat as both currencies remained caught between persistent inflation risks and concerns over weaker growth. Recent BoE commentary from Bailey has kept the possibility of further tightening alive if energy-driven inflation becomes more persistent, while Lagarde has favoured a more measured ECB response given limited evidence of second-round effects. With both central banks facing similar policy trade-offs, the cross has lacked a clear directional catalyst.

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GBP is retesting three-month lows against the U.S. dollar as elevated U.S. yields and persistent Fed tightening expectations continue to favour the greenback. Attention today turns to BoE policymaker Mann, who has recently argued for a more restrictive stance amid concerns over energy-driven inflation and second-round price pressures. U.S. jobless claims and ISM manufacturing data are also in focus, with stronger-than-expected readings likely to reinforce Fed rate-hike expectations and add further pressure on GBP ahead of Friday’s nonfarm payrolls.

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