The Morning Update

The USD slips, oil prices weaken, equity markets rebound, and US yields are mixed as investors weigh optimism over the Middle East. The U.S. dollar eased in early trading as hopes for progress in U.S.-Iran negotiations and a pause in direct Israel-Iran hostilities reduced some safe-haven demand. However, last week's stronger-than-expected U.S. jobs report continued to support expectations for higher U.S. interest rates, limiting downside pressure on the greenback. Investors are now focused on upcoming central bank meetings and developments in the Middle East for fresh direction. Global equity markets moved higher in early trading as investors cautiously returned to risk assets, with technology and AI-related shares leading gains after a recent pullback. Improved sentiment was supported by easing tensions in the Middle East and lower oil prices, while traders also scaled back expectations for further U.S. interest rate hikes. Despite the rebound, investors remain cautious ahead of upcoming U.S. inflation data and next week's Federal Reserve policy decision. Elsewhere, oil prices weakened as easing tensions in the Middle East reduced immediate concerns over supply disruptions, while gold prices slipped amid lower safe-haven demand and expectations for higher U.S. interest rates. Bitcoin also extended its recent losses, hovering below the $63,000 level as investors remained cautious ahead of key U.S. inflation data and next week's Federal Reserve meeting. Today sees a light economic calendar, with focus on the US Existing Home Sales & ECB President Lagarde's speech, which will help provide intraday direction to currency markets.

‍

News Headlines. SpaceX's $1.78tn IPO asks investors to buy Musk's moonshots. Apple unveils 'Siri AI' in challenge to rival chatbots. GSK to buy US cancer biotech Nuvalent for $10.6bn. Airbus plans German-led alliance to replace doomed fighter jet. Renault to cap defence revenue at 5% as it pushes into drone making. Israel and Iran halt counterstrikes. Chinese exports climb as AI boom fuels trade. Pentagon restores Alibaba, Baibu & BYD to Chinese military groups blacklist. Wall Street rebounds as traders race back into chip stocks. Canada's online harms bill to include social media ban for children under 16.

‍

In currency markets. Against the U.S. dollar, major currencies rebounded in early trading as improving sentiment surrounding the Middle East reduced safe-haven demand for the greenback. The euro and pound edged higher, while commodity-linked and emerging market currencies also recovered as investors welcomed signs of a pause in direct Israel-Iran hostilities. However, gains remained measured as strong U.S. jobs data continued to support expectations for higher U.S. interest rates and a broadly resilient dollar outlook.

‍

In commodity markets. Oil prices tumble 2.2%. Natural Gas prices rallied 1.1%. Gold & Silver prices slipped 0.15%. Copper prices strengthened 0.8%. Coffee & Wheat prices firmed 0.35%, while Soybean prices stalled.

‍

CAD edged off recent multi-month lows in early trading, supported by a softer U.S. dollar despite weaker oil prices. However, sentiment towards the loonie remains fragile as investors await Wednesday's Bank of Canada interest rate decision, while concerns over slowing domestic growth, widening U.S.-Canada rate differentials and uncertainty surrounding the upcoming CUSMA review continue to weigh on the currency. Speculative bearish positioning on the Canadian dollar has also risen to its highest level since December, highlighting persistent downside risks.

‍

EURCAD extended gains above 1.6100 in early trading as expectations for an ECB interest rate hike on Thursday continued to support the euro. The Canadian dollar remained under pressure amid concerns over slowing domestic growth and ahead of Wednesday's Bank of Canada policy decision. As a result, the cross remains biased higher in the near term.

‍

EUR firmed through 1.1550 in early trading as investors continued to position for an expected ECB interest rate hike on Thursday, supported by persistent inflation pressures across the Eurozone. The single currency also benefited from a modest improvement in risk sentiment and a softer U.S. dollar, although gains remained limited by ongoing uncertainty surrounding developments in the Middle East. Investors are now focused on Thursday's ECB policy decision and Wednesday's U.S. CPI report for further direction on interest rate expectations.

‍

GBPEUR edged higher in early trading as stronger-than-expected German industrial production data failed to provide meaningful support for the euro. Sterling remained underpinned by shifting interest rate expectations, with markets now pricing in the possibility of a Bank of England rate hike later this year rather than rate cuts. Investors are also looking ahead to Thursday's ECB policy meeting, where a 25-basis-point rate increase is widely expected.

‍

GBP edged higher in early trading as the U.S. dollar pulled back from recent highs following signs of easing tensions between Israel and Iran. However, gains for sterling remain limited as expectations for further Federal Reserve tightening continue to support the broader dollar outlook, while political uncertainty in the UK also weighs on sentiment. Investors are now focused on upcoming U.S. inflation data and UK GDP figures for fresh direction.