The Morning Update

The USD steadies, oil prices slip, equity markets rally, and US yields are mixed as risk sentiment improves. The USD bounced off two-week lows as global bond market volatility eased following a strong JGB auction, offering the greenback some near-term support. With markets pricing an 87% chance of a December Fed rate cut, the dollar is now highly sensitive to Friday’s Core PCE, the Fed’s key inflation gauge. A soft PCE would likely renew USD downside, while a hotter reading could quickly lift yields and strengthen the dollar. Global equities saw a cautious rebound as the recent flight from risky assets eased, supported by steadier bond markets after strong demand at Japan’s final 10-year JGB auction. S&P 500, Nasdaq 100, and major European and Asian indices posted modest gains as sentiment improved following Monday’s pullback. With the dollar little changed, investors are now in a wait-and-see mode ahead of next week’s Fed meeting, where a rate cut is widely expected, and upcoming U.S. jobs and inflation data will guide direction. Elsewhere, oil prices slipped amid concerns about ample supply and uneven global demand, which continued to weigh on energy markets. At the same time, gold weakened as firmer U.S. yields and profit-taking reduced appetite for the metal. Meanwhile, Bitcoin’s rebound toward $87,000 reflected improving risk sentiment after earlier heavy selling, with traders stepping back in as broader markets stabilized. Today's light economic calendar means we expect markets to remain cautious ahead of Wednesday's US PMI and Friday's Core PCE report for direction.

‍

‍In the news. Eurozone inflation up a notch to 2.2% in November. China floods the world with gasoline cars it can't sell at home. Trump's push to end the Ukraine war raises fears of 'ugly deal' for Europe. The UK is set for faster growth in 2026 and slower inflation, according to OECD forecasts. ECB refuses to provide a backstop for the Euro 140 billion Ukraine loan. Starmer urges UK businesses to boost trade with China despite security threats. Canadian air passenger traffic to the US is down for a 9th consecutive month. Northern Ontario steel mill issues layoff notices to 1,000 workers. Canada is now in the 'tent' of the EU's loans-for-weapons programs.

‍

In currency markets. The NOK, JPY, and ZAR all weakened against the USD as dollar demand firmed, reflecting a combination of recovering U.S. yields and improved risk sentiment that supported the greenback. NOK and ZAR underperformed on softer commodity-linked currencies amid fluctuating oil and metals prices, while the yen remained pressured by wide U.S.–Japan rate differentials despite recent BOJ speculation. CNY is flat, while Asian currencies slip by an average of 0.2% against the USD. Trading currencies are mixed, with JPY, ZAR & PLN weakening by 0.3%, and NOK & NZD falling by 0.2%, MXN, SEK & CZK down 0.1%. CHF and DKK are flat, and AUD is up 0.1% against the USD.

‍

In commodity markets. Oil prices slipped 0.1%. Natural Gas, Wheat, Copper & Coffee prices down 0.55%. Gold prices weakened 1.2%. Silver prices tumbled 2.7%, and Soybean prices are up 0.3%.

‍

CAD edged slightly lower as a deeper contraction in November manufacturing activity weighed on sentiment, partially offsetting last week's gains driven by stronger-than-expected Q3 GDP. While steady BoC policy expectations and narrowing U.S.–Canada yield spreads are helping limit CAD downside, softer factory data highlights ongoing economic headwinds. Oil’s modest rebound offered some support, but markets are now firmly focused on Friday’s Canadian unemployment report. This key job's release could influence expectations for the BoC’s path into 2026 and add volatility to the loonie.

‍

EURCAD traded flat in early dealings as markets awaited today’s euro-area inflation report. The release could set the tone for the pair, with any surprise in the data likely to influence ECB rate expectations and short-term EUR direction.

‍

EUR held steady above 1.1600 as Eurozone HICP inflation matched expectations at 2.4% year-over-year, leaving the pair confined to a tight range despite a generally softer dollar backdrop. With traders awaiting Friday’s U.S. PCE report for clearer direction on the Fed’s rate-cut path, and today’s Eurozone data offering no fresh catalysts, the euro remains broadly flat in early trading.

‍

GBPEUR edged lower as sterling softened on growing expectations of a December BoE rate cut following Governor Bailey’s focus on rising financial-stability risks. With Eurozone inflation steady and offering little directional impulse, the euro held firm, keeping the cross under mild downward pressure.

‍

GBP slipped below 1.3200 as Governor Bailey’s comments on rising financial-stability risks reinforced expectations that the BoE may cut rates as early as this month. His emphasis on banks supporting the economy and the need to safeguard stability added to the dovish tone already reflected in softer UK inflation and cooling labour-market data. The pullback also coincided with a firmer U.S. dollar, which recovered modestly across the board during European trading. While the pound retains some support after last week’s relief rally following the UK Autumn Statement, the rate-cut narrative continues to limit upside for GBP in the near term.