The Morning Update

The USD holds steady, oil prices edge higher, equity markets are up, and US yields ease ahead of keenly awaited US inflation data. Currency markets remain sidelined, while equity markets rebound heading into the US CPI data release this morning. Bloomberg expects the headline CPI to accelerate while the core gauge should slow slightly. "Ultimately, we don't expect the Feb CPI to report to provide clear enough evidence of disinflation to boost the Fed's confidence to cut rates," Bloomberg economists Wong & Paul wrote in a note. In Germany, its inflation data came in as expected at 2.7% y/y Feb, while in the UK, the unemployment level fell -21k in January, raising the unemployment level to 3.9%. Elsewhere, oil prices edged higher as markets await OPEC's monthly report. Gold prices eased from their record high. Bitcoin holds above $72k after testing a fresh high on Monday after the UK FCA approved crypto securities. BoJ officials edge closer to raising interest rates at next week's meeting. In focus today, the US CPI report, the Monthly Budget Statement, the OPEC Monthly Market Report, and BoE's Mann speech will help prove the intraday direction of currency markets.

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In other news. President Biden announced a $7.3 Trillion budget for 2025, calling for taxing the rich and corporations to pay for Social Security and Medicare. Ukraine launches multiple drone strikes into Russia. South Korea chipmakers halt old equipment sales over fears of US backlash. Sweden is ready to fortify the crucial Baltic island, says PM. Haiti PM tenders resignation after Jamaica talks. US steel unions urge Biden to open probe into Chinese shipbuilding. Brussels aims to fast-track up to E3 billion for Ukraine from frozen Russian assets. Aid ship leaves Cyprus bound for Gaza as Palestinians on brink of famine. According to NYT reports, the FAA audit found dozens of issues in Boeing 737 MAX production.

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In currency markets. JPY slips as Japanese officials dampen bets of an imminent policy shift by the BoJ as early as next week. CNY tests a fresh 6-week high on expectations of easing US inflation pressure and increasing expectations of a Fed pivot. CNY gains 0.15%, while Asian currencies are flat on average vs USD. Trading currencies are mixed, with JPY weakening by 0.35%, NZD & MXN down 0.1%, AUD & NOK are flat, CHF & SEK firms by 0.15%, and ZAR strengthening by 0.4% vs. USD.

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In commodity markets. Oil & Natural Gas prices strengthened by 0.75%, Gold and Silver prices slipped by 0.3%, Copper and Soybean prices are flat, and Wheat prices eased by 0.6%.

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CAD continues to trade within a narrow range, and investors remain sidelined heading into today's US inflation report. If we see US inflation levels ease, this could signal that the Fed may pivot its current interest rate policy. Domestically, there are several low-tier Canadian data releases this week that are not expected to have an impact on the loonie. Today's US CPI is the crucial data release for the week and should be a primary driver for the CAD's direction today.

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EURCAD holds steady after the German inflation level comes in as expected, and investors remain sidelined heading into the US CPI release.

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EUR steadies above 1.0900 as markets await the US CPI report. Markets remain cautious heading into the US CPI report, with the potential of a Euro rebound hinges on the US CPI data release. Domestically, the German Harmonized Index of Consumer Prices y/y Feb came in as expected at 2.7%, and m/m levels held steady at 0.6%. According to the CME FedWatch Tool, markets are currently pricing in a 70% probability that the Fed will cut rates in June. If the US Core CPI prints higher than market expectations, we could see the Euro weaken towards 1.0850.

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GBPEUR eases after weaker-than-expected UK jobs data potentially opens the door for the BoE to reduce interest rates sooner than initially expected.

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GBP weakened below 1.2800 after the weaker-than-expected UK jobs data. The pound comes under fresh selling pressure after the UK unemployment rate rose to 3.9%, while wage inflation cooled. The UK's wage growth hit 6.1%, its slowest pace since 2022, which could offer relief for the Bank of England. The focus shifts to the US inflation report; if we see a higher-than-expected US inflation print, the pound has the potential to weaken further towards 1.2735.