The Morning Update

The USD eased, oil prices are lower, equity markets are up, and US yields are mixed as we head into the key US inflation report. The USD eases off three-week highs ahead of today's key US CPI report. Currency markets remain steady, while the pound continues to come under pressure, holding at three-month lows against the euro. Global equities are up following news that Nvidia has secured US assurances to resume sales of some AI chips to China, which has boosted market sentiment and helped the Nvidia stock price rise 4.5% in early trading. The US Consumer Price Index is expected to increase by 0.3% in June, as US markets feel the effect of tariff-driven price hikes. With retailers like Walmart warning of price increases, most economists expect price pressures to start building from this summer and continue through the end of the year. Elsewhere, Bitcoin drops 2.5% on profit-taking to $116,900, while silver prices also ease, and gold prices firm in early trading. Oil prices edge lower as Trump's 50-day deadline with Russia eases supply concerns. In focus today, the OPEC monthly market report, CAD CPI, the US CPI, the NY Empire State Manufacturing Index, the G20 meeting, and BoC Governor Bailey's speech will help drive currency market direction.

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In other News. China's economy grows 5.2% as exports show resilience against Trump trade war. Australia's PM seeks to balance trade and security tensions in meeting with Xi. The US threatens Russia with 'severe' tariffs over the war in Ukraine. Trump asked Zelensky if Ukraine could hit Moscow, says people briefed on call. Netanyahu's government teeters as ultra-Orthodox party quits coalition. Carney to meet with the incident response group to discuss the wildfire situation. The EU eyes retaliatory tariffs against US aircraft, cars and bourbon. Carney set to meet with cabinet to weigh response to Trump's 35% tariff threat. TikTok urgently pitches a Canadian security solution to avoid a shutdown.

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In currency markets. The USD index slips from multi-week highs as investors take to the sidelines ahead of the US CPI report. Technically, a break of 97.850 could open up the USD index to retest June highs of 99.350. CNY slips 0.1%, while Asian markets on average gain 0.1% against the USD. Trading currencies rebound, with NOK down 0.15%, SEK, KWD and JPY flat, DKK, CZK & CHF up 0.15%, MXN & AUD firming 0.3%, NZD strengthening 0.45%, and ZAR rallying 0.7% against the USD.

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In commodity markets. Oil and Wheat prices weakened by 0.6%. Natural Gas prices tumbled by 1.1%. Gold prices strengthened by 0.45. Silver and Soybean prices eased by 0.3%, and Copper prices firmed by 0.3%.

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CAD gains in early trading heading into the US and Canadian inflation reports. The Canadian inflation report is expected to show a slight cooling in headline inflation to 0.1% m/m in June, while underlying inflation is expected to show signs of acceleration in response to the US tariffs. The loonie has the potential to retest the low 1.36's levels, which is partly due to the Bank of Canada keeping interest rates on hold. Intraday, the loonie will be driven by the inflation reports and the Fed's comments.

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EURCAD is holding below 1.6000, but we remain bullish on the euro and anticipate a potential rise to 1.6100 in the coming month, as we expect the EU to outperform Canada amid the ongoing US trade war.

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EUR edges higher amid a softening USD heading into the US inflation report. The euro edges higher as investors remain cautious ahead of the key US inflation report. The US CPI is expected to show signs of increasing inflationary pressure as a result of the US tariffs, with the core CPI increasing to 2.75% year-over-year (y/y) in June, and a monthly rise of 0.3% compared to 0.1% in May. Domestically, a better-than-expected German ZEW survey and Eurozone industrial data help provide a boost to the euro. Today, Fed comments and the US inflation report will be the primary drivers for the single currency.

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GBPEUR continues under pressure, losing over 3.5% against the euro in recent weeks, and now stands near three-month lows, as investors remain concerned about the health of the UK economy.

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GBP finds some support ahead of the US inflation report and the Bank of England Governor Bailey's speech. BoE Bailey will give his annual "Mansion House" address to London's financial sector today, along with Chancellor Reeves. Investors remain concerned about the economy's outlook, which contracted for a second consecutive month in May. Concern is building over the shrinking fiscal headroom, Chancellor Reeves that watered down the government's landmark reform to the welfare benefits and passed a bill that weakened long-term finances. Intraday, the US inflation report and BoE Governor Bailey's comments will be the primary drivers for the pound.

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