The Morning Update

The USD extends its losses, oil prices steady, and equity markets are mixed, while US yields ease as the mood eases. The buoyant mood on the back of China's latest economic stimulus measures quickly faded after ECB policymakers' warnings of higher-for-longer interest rates. The ECB governing council member De Galhau said the ECB is nearly finished hiking, but added that interest rates will stay at a "high plateau" for some time. The UK wage data released today shows growth holds at record highs, which is expected to keep pressure on the BoE to continue its rate-hiking policy. Today sees a light US economic docket, so we expect markets to be sidelined ahead of Wednesday's key US inflation report.

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In other news. NATO heads see 'strong message' on Ukraine's membership bid a summit. Russian drones attack Kyiv & Odesa hours before NATO summit. Biden supports Turkey's request to purchase F-16 fighter jets. Turkey's President Erdogan agrees to support Sweden's NATO bid. In Canada staff at the lodge for LNG workers approve a strike. Top US bank watchdog outlines tougher rules for larger lenders. UK pay grows faster than expected to 7.3% in the 3-months to May, while the jobless rate unexpectedly rises to 4%. Thailand PM Prayuth Chan-Ocha to retire from politics, nine years after seizing power in a coup.

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In currency news. The USD index falls to a 2-month low after the Fed signaled it was nearing the end of its tightening cycle. The GBP hits a 15-month high as wages spike heaping pressure on the BoE. CNY strengthens on property stimulus news. CNY gains 0.45%, while Asian currencies are up 0.3% on average vs US$. Trading currencies are mixed with NZD falling 0.4%, MXN slipping 0.1%, while AUD is flat and CHF, NOK & SEK gain 0.4%, JPY & ZAR strengthening 0.6% vs US$.

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Oil prices edge up on supply cuts by OPEC and continued hopes for higher demand in the developing world in H2-23. The CAD holds steady as the USD weakens on comments that the Fed is close to pausing its rate-hiking policy, while markets are sidelined ahead of the BoC interest rate decision on Wednesday. Strong jobs data on Friday driven by full-time positions which are likely to have set the stage for the BoC to hike by another 25bps, taking rates to 5%, their highest levels since 2000. Intraday, we expect the loonie to hold within current trading ranges with the absence of key economic releases from Canada and the US today.

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EURCAD steadies near 1.4600 at 2-month highs on the back of ECB policymakers' comments of higher rates for longer across the EU.

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EUR struggles to hold 1.1000 after mixed German ZEW survey. Euro slips from its 2-month high of 1.1027 after the single currency comes under selling pressure after Germany reported mixed ZEW data, while the USD paused its decline. The ECB governing council member De Galhau said the ECB is nearly finished hiking, but added that interest rates will stay at a "high plateau" for some time. We expect investors to remain sidelined heading into Wednesday's key US CPI report which will help set the stage for the Fed to pause if we see US inflation levels ease.

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GBPEUR strengthens on the back of stronger-than-expected UK wage data increasing expectations the BoE could hike another 50bps at its next meeting and pushing GBPEUR to near 2-year highs.

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GBP breaks through 1.2900 to 15-month high on strong wage growth. Annual wage inflation in the UK measured by the Average Earnings Excluding Bonus, held steady at 7.3% in the 3 months to May, while the unemployment rate edged higher to 4% from 3.8%. Markets are now starting to price in a 50bps rate hike at its next meeting potentially taking the BoE terminal rate to 6.5%. In the absence of any high-impact data releases from the US, we expect the pound to steady at its current high levels ahead of Wednesday's key US inflation report.

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