The Morning Update

The USD firms, oil prices steady, equity markets are mixed, and US yields ease to end H1. The U.S. dollar holds steady in early trading, set to end the second quarter near 13-month highs and on track for its strongest monthly gain since July 2025. The greenback has been supported by expectations of further Federal Reserve rate hikes, resilient U.S. economic data, widening interest rate differentials, continued capital flows into U.S. assets, and geopolitical uncertainty surrounding the U.S.-Iran conflict. Global equity markets are mixed in early trading, with U.S. futures slightly higher and European stocks firmer, while investors assess a strong quarterly rally powered by AI-related gains. The MSCI All-World index is on track for its best second-quarter performance since 2020, rising nearly 14% over the past three months. Despite the strong backdrop, markets remain focused on Fed Chair Kevin Warsh’s comments at the ECB Forum and this week’s U.S. jobs data for fresh direction. Elsewhere, oil prices are set for their steepest quarterly decline since 2020, as easing tensions in the Middle East weigh on crude. Gold is on track for its biggest quarterly fall since 2013 amid a stronger U.S. dollar, while Bitcoin remains under pressure below $60,000 following a volatile second quarter. Investors will be focused on the German Inflation report, CAD GDP, US Housing Price Index, Jolts Job Openings, Consumer Confidence, and Speeches from ECB's Lane and Cipollone to help provide direction to currency markets.

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News Headlines. Putin ties himself to the ruling party as war fatigue bites. The Magnificent Seven stocks shed $2.3TN in Wall Street tech rotation. Yen weakens to a 40-year low. The EU sets a deadline of October for reducing the trade deficit with China. US and Iranian negotiators head to Doha, but the meeting is uncertain. U.S. stocks set to finish their best quarter in six years. Shell nears $1 billion South Africa Fuel Stations sale to Adnoc unit. India plans to cut its reliance on Middle Eastern oil after the war shock. The US declaration to exit the USMCA starts a decade-long countdown for the pact. Tech selloff stirs bubble fears in the US stock market.

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In currency markets. Against the USD, most G7 currencies weakened during the second quarter as markets sharply repriced Federal Reserve expectations from rate cuts to potential rate hikes. The Japanese yen was the worst performer, falling to 40-year lows, while the euro and Canadian dollar also declined to one-year and 14-month lows respectively; sterling proved relatively resilient but still ended the quarter lower against the greenback.

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In commodity markets. Oil +0.30% | Nat Gas +1.16% | Gold +0.03% | Silver +1.12% | Copper +1.40% | Palladium +1.54% | Coffee +0.95% | Cocoa +1.05% | Soybeans -0.03%

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CAD is ending the second quarter at 14-month lows against the U.S. dollar, pressured by broad U.S. dollar strength, rising speculative bearish positioning and ongoing uncertainty surrounding Canada's economic outlook. Attention now turns to today's Canadian GDP report and Wednesday's virtual CUSMA (USMCA) review meeting, with both expected to provide important direction for the loonie. A weaker-than-expected GDP reading or signs of increased trade uncertainty could leave the Canadian dollar vulnerable to further weakness as markets enter the third quarter.

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EURCAD is trading near five-month highs as the euro continues to outperform a weaker Canadian dollar, with the pair supported by diverging policy expectations and persistent pressure on the loonie. While the euro could extend its gains into the third quarter, the longer-term direction is likely to hinge on the outcome of the CUSMA (USMCA) review and whether trade negotiations improve the outlook for the Canadian economy.

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EUR is softer in early trading, with EUR/USD slipping back toward 1.1400 as a firmer U.S. dollar and expectations of a more hawkish Federal Reserve weigh on the single currency. Despite the recent pullback, the euro posted a solid second-quarter gain against the U.S. dollar, supported by broad dollar weakness earlier in the quarter before surrendering some of those gains into the month-end. Investors now await Germany's preliminary inflation data and the U.S. JOLTS job openings report for fresh direction.

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GBPEUR is steady in early trading, with sterling supported by Andy Burnham's commitment to maintain existing fiscal rules, helping to keep UK bond markets stable. However, expectations of a less hawkish Bank of England, elevated political uncertainty and growing speculative short positions could see the pound gradually weaken against the euro over the next one to three months.

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GBP is weaker in early trading, slipping back toward 1.3250 as a stronger U.S. dollar and expectations of a more hawkish Federal Reserve weigh on sterling. Investors are also monitoring the UK's political transition and this week's U.S. employment report, with stronger-than-expected data likely to reinforce Fed rate hike expectations and keep pressure on the pound.

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