The Morning Update

The USD edges higher, oil prices weaken, equity markets are up, and US yields are mixed ahead of a key data reports. The USD is steady as investors await today’s key CPI release, following Wednesday’s softer PPI, with markets debating whether the Fed will cut 25 bps or 50 bps next week. The euro is also range-bound ahead of the ECB decision, where rates are expected to be held and President Lagarde is likely to maintain a hawkish stance. Global equities edged higher as investors awaited Thursday’s pivotal U.S. CPI report, with S&P 500 futures up 0.1% after back-to-back record highs but broader sentiment cautious ahead of the data. The TSX was little changed, with gains in energy offset by weakness in financials, as investors also looked to U.S. inflation figures for direction. Asian equities were mixed, with Japan easing on profit-taking, China flat, and South Korea extending recent gains, while in Europe attention turned to the ECB rate decision, where policymakers are expected to hold rates steady but keep a hawkish tone. Treasuries held steady with the 10-year yield at 4.05%, as expectations for Fed easing this month grew on signs of labor market strain and Wednesday’s surprise drop in producer prices. “Even if we do have a bit of a bump in CPI, there is a theory that it can be short-term, driven by tariffs,” said Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank. “As long as it is not such a big increase, I don’t think you’ll see a very big negative reaction on the market.” Elsewhere, oil prices slip on forecasts of a record surplus in 2026, while Bitcoin advances towards $114,000, and gold & sliver ease in early trading. In focus today, the ECB interest rate decision, the US CPI report, Initial jobless claims and ECB Press Conference will help drive direction to currency markets today.

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In the news. Peter Mandelson sacked as UK ambassador to the US over Epstein links. The UN to hold emergency meeting on Russian drone incursion, says Poland. Mexico to slap 50% tariff on Chinese cars under US pressure. The UN and Iran take 'important step' towards restarting nuclear inspections. Nepal's young protesters and the army in talks to decide an interim leader. Poland bans drone flights and limits small air craft along its eastern border. Rising G7 debt back at the centre of bond market storm. Carney says major projects coming to combat trade war 'Crisis.' BC leader says. Bombardier CEO urges Canada to think long-term with the Defence plan. German exporters sound the alarm over trade tariffs and weak demand. The South African current account deficit widens more than expected.

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In currency markets. The AUD retreats after hitting the highest levels since November on Wednesday, while the krona remains under pressure from weak European growth and cautious Riksbank guidance. The ZAR softens on a wider current account deficit but could find support from strong commodities and global risk appetite. CNY holds steady, while Asian currencies eased by 0.15% on average against the USD. Trading currencies come under pressure, with JPY, ZAR, and SEK weakening 0.35%, CZK, PLN, , NZD, MXN, and NZD easing 0.25%, DKK & NOK fell 0.15%, and CHF & KWD are flat against the USD.

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In commodity markets. Oil and Gold prices weaken by 0.65%. Natural Gas prices strengthened by 0.7%. Silver and Copper prices eased by 0.3%. Wheat prices slipped by 0.1% and Soybean prices firmed by 0.45.

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CAD tests a fresh two-week low as markets priced in a roughly 90% chance the Bank of Canada will cut rates next week, despite support from higher oil prices. Softer domestic data and tariff-related uncertainty have reinforced expectations the BoC will resume easing after holding since March. The U.S. dollar was also supported by bets the Federal Reserve will cut rates next week, following a surprise drop in producer prices. With both central banks seen leaning dovish, Canadian bond yields fell to near four-month lows, reflecting easing pressure across North American markets. Focus will be on the US CPI to provide direction to the loonie today.

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EURCAD is approaching its 52-week high of 1.6258 against the CAD as markets await today’s ECB rate decision, where policymakers are expected to hold rates steady but maintain a hawkish tone. In contrast, the Bank of Canada is seen leaning toward renewed easing amid weaker domestic data, leaving the loonie under pressure despite resilient oil prices. Into Q4 2025, EUR/CAD is expected to stay firm above 1.60 with scope to test new highs towards 1.6400 region if ECB hawkishness persists and the BoC cuts rates.

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EUR slips below 1.1700 in early trading as the USD outperforms ahead of the ECB policy decision and U.S. CPI release. The ECB is expected to hold rates, but any dovish signals from President Lagarde could add pressure on the euro amid political uncertainty and trade tensions. In the U.S., benign PPI data and weak labor figures have cemented expectations of a Fed rate cut next week, with markets watching CPI to gauge whether easing could be as large as 50 bps. Geopolitical concerns, including NATO’s interception of drones in Polish airspace, have also weighed on euro sentiment.

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GBPEUR trades cautiously as markets await today’s ECB decision, with rates expected to be held at 2.00% but hawkish guidance likely to support the euro. Sterling focus shifts to Friday’s UK GDP and factory data, where signs of stagnation could pressure the pair lower unless figures surprise to the upside.

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GBP slipped to towards 1.3500 in early trading as traders awaited the August CPI report, which will shape expectations for the size of next week’s Fed rate cut. Markets see a small chance of a 50 bps move, though most anticipate a standard 25 bps reduction, depending on whether inflation shows signs of cooling. The U.S. dollar index hovered near a three-day high, reflecting firm demand for the greenback ahead of the data. Looking ahead, investors will closely watch Friday’s UK GDP and factory data for July, with expectations for stagnation likely to influence near-term sentiment on sterling.