The Morning Update

The USD steadies, oil prices slip, equity markets are up, and US yields are mixed as risk sentiment improves. Currency and treasury markets hold steady, while equity markets gain after a late surge in Chinese shares boosted risk-on sentiment as the mainland equity indexes rebounded from oversold levels. Investors remain focused on the Fed Reserves Chair Powell's speech due Friday at the Jackson Hole Economic Policy Symposium. Investors are seeking clues on the Fed's next steps after the central bank lifted rates to 5.5%, its highest level in 22 years. In a recent Bloomberg poll, 80% of those polled expect Powell's Jackson Hole speech will reinforce the message of a hawkish hold. Today sees Fed's Goolsbee, & Bowman speeches and US Existing Home Sales Change to help provide intraday currency direction.

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In other news. S&P downgrades multiple US banks citing 'tough' operating conditions. Microsoft, Activision to sell streaming to secure biggest video gaming deal. BRICS leaders meet in South Africa as bloc weighs expansion. SoftBank-backed chip designer ARM reveals filing for a blockbuster US IPO. Thailand's fugitive ex-PM Thaksin returns to jail, after years in self-exile. UK public borrowing rises less than expected in July to GBP 4.3bn. Ukraine reportedly destroys supersonic Russian bomber; drones damage Moscow apartments.

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In currency news. CNY finds support near 9-month lows as Beijing set stronger fixing rates. The USD continues to ease as risk appetite improves following the equity market rebound. ZAR strengthens as BRICS summit kicks off in South Africa. Commodity currencies rebound on the back improving risk sentiment. CNY holds steady, while Asian currencies firm 0.25% on average vs USD. Trading currencies rebounded with CHF up 0.2%, NOK & JPY firming 0.35%, SEK & MXN gaining 0.5%, AUD & NZD strengthening 0.7%, and ZAR rallying 0.9% vs USD.

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Oil prices slipped in early trading as investors remain concerned about China's economic conditions and ongoing demand worries. CAD firms slightly in early trading, but continues to underperform its peers on the combination of falling Chinese demand for commodities, domestic labor disputes, and the ongoing wildfires across Canada. We expect investors to remain somewhat sidelined and will look to Wednesday's CAD Retail Sales data for clues on the strength of the domestic economy. Today, we expect the CAD to struggle to strengthen beyond 1.3470 vs USD.

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EURCAD holds steady in early trading as investors remain focused on this week's data releases and the key Fed Chair speech on Friday.

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EUR continues to straddle 1.0900 ahead of Fed speakers and US data. Investors remain apprehensive to take any aggressive positions ahead of the Fed Chair's speech on Friday, leaving the Euro holding a 1.0850-1.0950 trading range. The USD continues to find underlying support with US 10-year treasury note testing 2007 highs and the US 2-year note posted above 5% heading into an anticipated "Hawkish Hold" tone from the Fed Chair on Friday. Today Fed speakers and US Existing Home Sales should help provide some intraday direction.

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GBPEUR edges higher as investors continue to favor the pound over the Euro on expectations of up to three more hikes from the BoE in 2023.

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GBP stalls at 1.2800 vs USD as markets balance improving risk-on sentiment amid anticipated hawkish Fed comments today. The pound failed to extend gains beyond 1.2800 as investors drifted back to the USD ahead of several Fed speakers who expected to maintain their hawkish tone ahead of Friday's key Fed Chairs speech. Investors are expected to take a cautious tone today ahead of Wednesday's key Composite, Manufacturing & Services PMI data out for the UK. Intraday Fed Speech should help support the USD.

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