The Morning Update

The USD firms, oil prices are steady, equity markets are mixed, and US yields are mixed as trade concerns persist. The USD edges off six-week lows as US trade policy uncertainty continues to cloud market sentiment, and investors are sidelined ahead of a possible call between Trump and Xi Jinping this week. China's factory activity in May shrank for the first time in eight months, indicating that US tariffs are starting to impact manufacturing. Global equity markets were mixed, with Asian markets positive, while European markets and US futures are down as markets await Sino/US talks. The OECD warned today that the US trade policies have tipped the world economy into a downturn, with the US among the hardest hit. Elsewhere, oil prices are steady, Bitcoin prices edge higher, while gold and silver prices ease. In focus today are US JOLTS Job Openings, Factory Orders, and speeches by Fed's Goolsbee & Cook will help provide intraday direction to currency markets.

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In the news. Global economy set for weakest growth since COVID, OECD warns. Eurozone inflation falls below target to 1.9%. South Korea votes in pivotal presidential election. India and Europe agree on nearly half of trade deal 'chapters.' Ukraine and Russia far apart on ceasefire terms at Istanbul talks. Far-right Dutch leader Geert Wilders quits government. Reeves warned on budget rules, OECD urges UK to boost tax revenues. Liberal government legislation to further tighten Canada-US border is expected today. Trump presses reluctant GOP Senators to embrace House tax bill. PM Carney to open new Canada oil pipeline tied to carbon capture.

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In currency markets. The AUD and NZD weaken amid ongoing China/US trade uncertainty. The pound eased following the BoE's Governor's comments that the bank is expected to keep to its gradual and careful rate cut view. The USD firms are in early trading, but the greenback remains vulnerable to further weakness as growth and long-term debt concerns remain primary concerns for investors. CNY firmed by 0.15%, while Asian currencies weakened by 0.2% on average against the USD. Trading currencies come under pressure, with NZD, NOK & AUD tumbling 0.7%, SEK weakened by 0.55%, CHF, JPY & DKK fell 0.35%, MXN & ZAR down 0.2% against the USD.

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In commodity markets. Oil prices up 0.2%. Natural Gas prices strengthened by 0.45%. Gold prices dropped 0.45%. Silver prices fell 0.9%. Copper prices tumbled by 1.9%. Wheat prices weakened by 1%, and Soybean prices gained by 0.35%.

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CAD has weakened from Monday's eight-month highs as investors remain cautious following the US plans to raise the tariffs on steel and aluminum from 25% to 50%, and on expectations that the Bank of Canada will keep interest rates on hold tomorrow. The BoC is expected to keep the benchmark interest rate at 2.75% for the second consecutive meeting, with investors focused on the BoC's monetary policy statement for direction of rates into Q3. Intraday, we expect investors to keep their powder dry with the lack of high-tier economic data releases today, with markets focused on Wednesday's ADP employment change ahead of Friday's critical US Nonfarm Payrolls and the Canadian employment report.

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EURCAD weakens in early trading, but we continue to remain bullish euro against the loonie in the longer term as ongoing tariff issues are expected to have the more significant impact on the loonie.

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EUR weakens towards 1.1400 after softer-than-expected eurozone inflation report. The euro weakened in early trading, driven by a stronger USD and the heightened prospect of an ECB rate cut due to the softer eurozone inflation report. The eurozone annual HICP inflation eased to 1.9% in May, falling short of forecasts, which boosted expectations for an ECB rate cut on Thursday. The decline in headline inflation indicates that business uncertainty, influenced by global trade tensions and decreasing consumer demand, adds pressure on the single currency. Intraday, unless the Jolts Jobs data prints outside expectations, we anticipate markets will steady within current levels.

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GBPEUR edges higher after the softer eurozone inflation levels put selling pressure on the euro.

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GBP drifted lower towards 1.3500 on BoE Governor Bailey's comments. The pound eased amid a firmer USD and dovish comments from BoE policymakers. BoE Governor Bailey, testifying before Parliament, noted that the bank hasn't seen any inflation surprises and reiterated the need to continue gradually easing policy. BoE Mann adopted a more cautious tone, saying that future policy decisions will require certainty that inflation is on track. Intraday, the US JOLTS Jobs opening will be the primary driver for the market today.