The Morning Update

The USD strengthens, oil prices fall, equity markets are down, and US yields rise after the Fed signals higher for longer rates. The USD and US yields gained, while equity and oil prices fell after the Fed signaled higher rates for longer and left the door open for another 25bps rate hike in 2023. The Bank of England leaves interest rates unchanged at 5.25, as the bank takes into consideration weakening domestic growth and after domestic inflation levels feel beyond expectations this week. The pound weakened towards 1.2250 in response to the BoE keeping interest rates on hold. In focus today are US initial jobless claims, the Philadelphia Fed Manufacturing Survey, and the CAD New Home Price Index.

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In other news. India suspends providing visas to Canadian Citizens as row escalates. Poland signals halt to Ukraine weapons transfers amid trade dispute. Hedge funds add fuel to the oil price rally with bets on a rise above $100-FT. Brussels considers defending EU nations in the Ukraine grain dispute. China welcomes the Syrian president for a summit. The Fed's dream of a soft landing is facing a triple threat of UAW strike, a government shutdown & the restart of student loan payments could impact growth in 2023-Bloomberg. Canada gathers allies as tensions rise with India over Sikh leader's murder. Australia tribunal pushes Chevron, LNG unions to resolve wage fight.

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In currency news. CHF tumbles after the SNB pauses interest rate hikes. CNY eases, while the USD strengthens after the Fed's hawkish pause. Japan warns against post-Fed yen slide, keeping intervention on the table. Commodity-based currencies come under pressure after the Fed comments. CNY slips 0.1%, while Asian currencies are down 0.2% on average vs USD. Trading currencies come under pressure with CHF & AUD dropping 0.7%, NZD, ZAR & SEK weakening 0.2%, JPY & NOK slipping 0.1% and MXN is flat vs. USD.

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In commodity news. Oil prices fell 1%, Gold fell 1.2%, Silver weakened 0.5%, Copper tumbled 2.25%, Lumber is unchanged, and Wheat slipped 0.5%.

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CAD reverses its weekly gains, retesting 1.3500 levels after the Fed's hawkish comments on Wednesday boosted the USD, and weakened commodities prices, which put additional selling pressure on the loonie. We anticipate CAD will find support towards 1.3600 after a higher inflation print this week increased speculation from 23% to 50% that the BoC will resume tightening in October. Intraday investors will be focused on US and CAD data releases to help provide direction to the loonie today

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EURCAD firms in early trading as weakening commodity prices put selling pressure on the loonie.

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EUR struggles to hold 1.0650 amid USD strength post-Fed comments. Euro attempts to consolidate losses after tumbling near 100bps after the Fed signaled the potential of one more rate hike in 2023 and anticipated higher rates remaining through 2024. US yields remain at near multi-year highs which continues to support the USD, following the ECB's comments last week stating that its interest rates hiking has ended. Euro did find some support after ECB Makhlouf said that there was little chance of a rate cut before March 2024. Today US data may help provide some intraday direction to the euro today.

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GBPEUR weakened after the BoE kept rates unchanged as recession fears increased with domestic growth remaining challenging.

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GBP weakens towards 1.2250 after keeping rates unchanged for the first time in nearly two years. The BoE brings its most aggressive tightening cycle in more than 30 years to an end amid mounting recession fears and as inflation levels cool. The BoE held its key rate at 5.25%, ending a series of 14 successive hikes since December 2021. The pound weakened on the news vs. its peers, with the pound testing its weakest levels in March and is down 3.2% vs. USD in September. Markets will be focused on Governor Bailey's comments to provide further guidance on the bank's stance on interest rates into Q4/23

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