The Morning Update

The USD holds steady, oil prices slip, equity markets are up, while US yields ease as investors await critical US data later in the week. The USD struggles for fresh direction ahead of the Fed's favored inflation gauge due Thursday. Readings on the US economy are focused on this week, with the Core Personal Consumption Expenditures price index on Thursday and Wednesday's GDP report. Markets have already reduced their expectations of early Fed easing with continued job growth and price gains as markets shift their bets on the first cut to July. Global equity markets continue to head for monthly gains, while US treasuries are steady after sliding Monday amid heavy corporate issuance and two-year note auctions. Elsewhere, oil prices ease amid speculation of a Gaza ceasefire agreement, while Bitcoin tested $57k, its highest level since 2021, supported by ETF demand. In Focus today are US Durable Goods Orders, Nondefense Capital Goods Orders ex Aircraft, Consumer Confidence, ECB Elderson, BoE's Ramsden, and Fed's Barr speeches today.

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In other news. Ukraine welcomes the West's discussion of direct intervention, and Russia warns against it. President Biden says Israel is ready to pause Gaza fighting; Hamas says the deal is not done yet. Hawkish Fed impedes regional bank's efforts to shred CRE risks. Biden will meet with congressional leaders as government shutdown looms. Japan inflation tops forecast, supporting BoJ case to end negative interest rates. Zoom sales top estimates on enterprise customers. China props up the CNY ahead of the leadership summit in March.

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In currency markets. The USD steadied while the JPY strengthened after data confirmed domestic inflation levels exceeded the BoJ target. Commodity currencies advance as the USD is sidelined ahead of Thursday's Core Personal Consumption Expenditure price index report. CNY is flat, while Asian currencies firm by 0.1% on average vs USD. Trading currencies are mixed, with NOK weakening by 0.25%, AUD & SEK down 0.1%, CHF Flat, NZD & MXN up by 0.2%, JPY gains by 0.3%, and ZAR rallying by 0.8%.

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In commodity markets. Oil prices slipped by 0.4%, Natural Gas Prices tumbled by 5%, Gold & Copper prices firmed by 0.35%, Silver prices rose by 0.6%, Wheat prices eased by 0.25%, and Soybean prices rallied by 1%.

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CAD continues to straddle 1.3500 as it balances easing commodity prices vs. improving risk-on sentiment. We expect the loonie to remain within its current trading range with the absence of any high-tier economic data releases today as investors await Wednesday's USD GDP report, and the CAD Currency Account Q4 release. In the medium term, we expect the loonie to remain vulnerable to further weakness with the prospect of further commodity price weakness and higher US interest rates for a longer time.

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EURCAD holds steady near monthly highs as oil prices are expected to ease further with the prospect of a Gaza ceasefire.

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EUR steadies at 1.0850 ahead of fresh US data this week to help provide direction on the Fed's interest rate direction. Euro continues to find support amid a soft USD and ongoing hawkish ECB comments. ECB President Lagarde told the EU Parliament on Monday that wage pressure across the eurozone remains strong and added that the restrictive policy stance continues to act as a safeguard against the wage-price spiral. US Durable Goods Orders are expected to decline 4.8% in January following December's unchanged reading. If the data comes in within expectations, we anticipate the USD to remain within its current range, as investors are expected to be sidelined ahead of the Fed's favored Core Personal Consumption Expenditures price index on Thursday.

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GBPEUR holds steady intraday but remains slightly down in February as the Euro continues to find support from hawkish ECB comments.

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GBP retests 1.2700 on the back of subdued USD. The pound continues to find support from a softer USD dollar, the improving risk-on sentiment from the prospect of a Gaza ceasefire, and continued hawkish BoE comments. Investors are still focused on market pricing after the pound recorded its biggest one-week rally vs USD in 2024 last week. The pound continues to find support from high short-term rates, and the consensus of the UK Monetary Policy Committee is that interest rates have peaked. Still, there appears to be little appetite to cut rates, with many expecting the BoE to be the last major central bank to reduce its key interest rates.