The Morning Update

The USD holds steady, oil prices tumble, equity markets are down, and US yields are mixed ahead of the US Jobs report. The U.S. dollar is near multi-week lows as markets await U.S. non-farm payrolls and other key releases that could confirm slowing momentum in the labour market. Investors are pricing in a high probability that the Federal Reserve will hold rates in January, capping upside for the dollar. Attention is on the busy U.S. economic calendar, including jobs data, inflation prints, retail sales and growth indicators, for clearer direction on Fed policy. Global equities weakened as investors turned cautious ahead of key U.S. jobs data, with stocks falling across Asia, Europe and U.S. futures. The October and November U.S. employment reports, delayed by the government shutdown, are the main near-term catalyst, shaping expectations for Federal Reserve rate cuts next year. Falling oil prices — with Brent dipping below $60 — and softer Chinese factory data added to the risk-off tone. Markets are also bracing for a heavy macro week ahead, including U.S. inflation data and policy decisions from the ECB, the BoE, and the Bank of Japan. Elsewhere, Gold hovered near a seven-week high, supported by a weaker dollar and expectations of U.S. rate cuts, while investors also sought safety ahead of key economic data. Oil prices fell below $60 a barrel for the first time in months on rising optimism over a potential Russia-Ukraine peace deal that could ease sanctions and boost supply, while Bitcoin rebounds towards $87,000 in early trading. Today sees a heavy economic calendar, US Average Hourly Earnings, US Nonfarm Payrolls, Retail Sales, S&P Global Manufacturing PMI, S&P Global Services PMI, & BoC Governor Macklem's Speech will help drive currency markets today.

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In the news. Russia will shift forces to the NATO border if a Ukraine deal is struck, Finland warns. Mexico's China tariffs show the rise of Trump's trade template. The US suspends a technology deal with the UK. Argentina to loosen currency exchange rate band in January. UK unemployment rate rises to 5.1%. Canada clears the way for $60bn Anglo Teck merger. Oil falls below $60 a barrel on hopes of Russia-Ukraine peace deal. Turkey shoots down 'out of control' drone over the Black Sea. Trump seeks up to $10 billion in damages from the BBC over the editing of his January 6th speech. PayPal applies to become a bank as the US loosens regulatory reins. Quebec WSP to buy Warburg-owned engineering firm for $3.3 billion.

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In currency markets. The Norwegian krone has been weakening amid broader FX shifts and lower oil revenues, leaving it on the back foot against major currencies. Markets have seen the Japanese yen edge higher as traders price in possible BOJ tightening, though skepticism over aggressive rate hikes is tempering stronger gains. The Chinese yuan has firmed modestly against the U.S. dollar as broad dollar weakness and expectations of U.S. rate cuts offset concerns about China’s growth outlook. CNY is up 0.1%, while Asian currencies on average are flat against the USD. Trading currencies are mixed, with NOK tumbling 0.4%, SEK weakening 0.3%, AUD, NZD, CZK, & PLN are down 0.1%, CHF, DKK & ZAR are flat, while MXN, JPY, and KWD are up 0.1%.

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CAD slips off three-month high in early trading, following Monday's inflation data, which showed annual CPI holding at 2.2% in November, slightly below expectations, while core measures eased further toward the Bank of Canada’s target. The loonie touched its strongest level since mid-September before paring gains as oil prices fell and bond yields eased. Markets now price less tightening from the BoC next year, with attention turning to Governor Macklem’s speech for guidance on the bank's policy direction.

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EURCAD inches higher as the euro holds steady despite weak euro zone data, while the Canadian dollar softens after cooler inflation and lower oil prices. Focus is now on BoC Governor Macklem’s comments for clarity on whether the Bank of Canada is done easing, which could shape near-term direction.

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EUR is flat against the dollar, holding around 1.1750 as weaker German and euro zone PMI data limit upside. The single currency is struggling to attract fresh demand, while the dollar remains steady as investors avoid large positions ahead of key U.S. nonfarm payrolls data. Near-term direction hinges on whether U.S. jobs figures reinforce or challenge expectations for Federal Reserve rate cuts.

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GBPEUR strengthens as the pound outperforms on upbeat UK PMI data, while the euro remains subdued following weaker German and euro zone PMI readings. With both the Bank of England and the European Central Bank holding policy meetings this week, markets expect a BoE rate cut while the ECB is seen staying more cautious, lending near-term support to sterling against the euro.

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GBP extends gains above 1.3400 as the pound benefits from stronger-than-expected UK PMI data, signalling improving momentum in both the services and manufacturing sectors. The rally comes ahead of a busy week for sterling, with markets also focused on the Bank of England’s interest rate decision, where a quarter-point cut is widely expected amid easing inflation and a cooling labour market. Later in the session, key U.S. data — including nonfarm payrolls — could add volatility and test the pair’s ability to hold recent gains.

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