The Morning Update

The USD trades sideways; oil prices rally, equity markets move higher, and US yields rose. The U.S. dollar trades sideways as markets await today’s PPI and Friday’s CPI, with stronger jobs data leaving a 60% chance of a Fed rate hike next week. U.S. Treasury yields rose despite plans to buy back up to $6 billion in long-dated debt, with the 10-year yield reaching 4.85%, its highest level since November 2023. Bitcoin remains under pressure, falling 0.32%, extending its losses to 22.62% over the past four weeks and 32.55% over the past 12months.

News Headlines:  Trump said he expects the Iran war to end after the November midterms but renewed threats of further strikes, as escalating attacks on shipping disrupted key supply routes and kept Brent crude above $100 a barrel. Trump proposed a $5,000 “Trump dividend” for every U.S. adult if Republicans win the November midterm elections, placing himself firmly at the center of the GOP campaign. NATO allies reportedly disrupted a covert Russian Arctic exercise involving technology designed to disable critical undersea cables,heightening Western concerns over Russian sabotage operations and tensions with NATO. Xi Jinping’s expected visit to India could further improve diplomatic relations, although investment restrictions, visa delays and trade barriers continue to limit stronger economic ties between the two countries.

In currency markets: Currency markets are relatively cautious ahead of the ECB decision and U.S. PPI today, while the combination of $100+ oil, rising global yields and expectations for further rate hikes by the Fed, ECB and BoJ is driving the major crosses. The yen remains firm after U.S. Treasury Secretary Bessent warned traders against betting on JPY weakness, reinforcing expectations for a BOJ rate hike and potentially further U.S.-Japan support for the currency.

In commodity markets: Oil prices are up 1.4%.Natural gas is off 1.0%. Gold gained 0.4%. Silver trade lower 0.80%. Copper is off 1.3%. Coffee is down 2.6%. Soybeans traded 0.16% higher while wheat is down 0.47%.

USD/CAD traded sideways on the back of general U.S. dollar weakness, while escalating U.S.-Canada trade tensions following Canada’s retaliatory tariffs remain a key upside risk for the pair.

EUR/CADtrades relatively unchanged ahead of today’s expected 25-bp ECB rate hike, withLagarde’s guidance likely to drive the euro while elevated oil prices provideunderlying support to the Canadian dollar.

EUR the ECB is expected to raise rates by 25 bps today, with markets focused on updated economic projections and President Lagarde’s comments for guidance on the path ahead.

GBP/EUR remains largely unchanged ahead of today’s expected 25-bp ECB rate hike, with Lagarde’s guidance likely to determine direction as sterling remains subdued ahead of Friday’s UK GDP data.

GBP Sterling trades relatively unchanged, with broad U.S. dollar weakness providingsome support, while markets await today’s U.S. PPI and Friday’s CPI and UK GDPdata for direction.

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