The Morning Update

The USD is steady, oil prices are firm, equity markets are up, and US yields are mixed as risk sentiment improves. The US dollar is attempting a modest rebound but remains under pressure as markets head into the Federal Reserve meeting. Investors are cautious amid concerns over Fed independence, potential US-Japan currency coordination, and the risk of renewed political volatility surrounding monetary policy decisions. Global equities are pushing toward fresh highs, led by technology shares as investors lean into a busy earnings week and renewed enthusiasm for AI-linked names. US futures are modestly higher with the S&P 500 closing just shy of a record, while European stocks gained and Asian equities hit new highs, led by chipmakers. Markets are recovering from recent volatility, with attention now split between corporate results and Wednesday’s Federal Reserve decision as key drivers for near-term direction. Elsewhere, oil prices firmed on supply-side support, while gold traded sideways as investors paused after the recent rally. Bitcoin remained steady but capped below $88,000, reflecting cautious sentiment in crypto markets. Today's economic calendar is light ahead of Wednesday's Fed rate decision. The focus will be on the US ADP Employment Change, US Consumer Confidence, ECB President Lagarde's speech, and the AUD CPI report to provide direction to currency markets.

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In the news. US-India trade deal 'in very advanced stages,' Indian petroleum minister tells CNBC. The US links security guarantees for Ukraine to peach deal ceding territory. The EU and India clinch 'mother of all deals' in rebuff to Trump. 'Not Interested': Alberta Premier rejects US statehood in swipe at Bessent. Canada and India pledge to expand oil and petroleum trade as part of an energy reset. Global equities close in on new highs as tech leads the charge. US airlines cut flights again as another winter storm looms. Thai finance minister cuts 2025 growth estimate to 2.2%. Carney links Trump's latest tariff threat to CUSMA negotiations.

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In currency markets. The Japanese yen strengthened against the US dollar, supported by safe-haven demand and ongoing speculation around policy action. In contrast, the South African rand was little changed, trading flat as broader risk sentiment steadied. CNY is flat, while Asian currencies firmed by an average of 0.25% against the USD. Trading currencies improved, with KWD & ZAR flat, MXN, NZD, DKK, CZK & PLN up 0.1%, CHF, AUD, NOK & SEK gained by 0.25%, and JPY strengthened by 0.45% against the USD.

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In commodity markets. Oil prices gained by 0.5%. Natural Gas prices tumbled by 7.8%. Gold prices are flat. Silver prices weakened 2.8%. Copper prices fell 1.9%. Coffee prices strengthened 1.2%. Soybean and Wheat prices are up 0.2%.

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CAD is consolidating around the 1.3700 level, leaving the Canadian dollar near multi-month highs amid cautious trading. The Bank of Canada is widely expected to keep interest rates unchanged, with markets closely watching its assessment of inflation, labour market conditions and external trade risks. Attention is also on the Federal Reserve, as any divergence in policy tone could determine whether the loonie can sustain its recent strength against the US dollar.

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EURCAD is edging higher in early trade as the euro modestly outperforms a broadly steady Canadian dollar. Upcoming comments from ECB President Christine Lagarde will be in focus, alongside the Bank of Canada’s policy decision, keeping traders cautious near recent levels. Any divergence in messaging on inflation risks and future rate paths could shape the next move in EUR/CAD.

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EUR is retesting the 1.1900 level, supported by ongoing US dollar weakness and a generally constructive risk backdrop. Attention is now on comments from ECB President Christine Lagarde later today, as investors look for confirmation that the ECB remains comfortable with its policy stance and inflation trajectory. Signals that rates will stay restrictive for longer could help the euro hold near recent multi-month highs.

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GBPEUR is edging higher in early trading as the euro softens after failing to extend recent gains. Sterling remains supported by last week’s strong UK data, while weaker German business sentiment has weighed on the euro. Markets are now focused on upcoming comments from ECB President Christine Lagarde for fresh policy cues.

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GBP has broken through the 1.3700 level, extending its recent rally as sterling outperforms amid strong UK data and resilient risk sentiment. The move comes despite some near-term caution ahead of the Federal Reserve decision, suggesting underlying demand for the pound remains firm. Sustained trading above 1.3700 would reinforce the bullish bias, with attention now on follow-through and broader USD direction.