The Morning Update

The USD edges higher, oil prices rally, while equity markets and US futures are mixed as Iran dismisses Trump's negotiations as 'fake news'. The US Dollar regains ground as investors remain cautious about a swift resolution to the Middle East conflict. Conflicting signals surrounding negotiations continue to fuel uncertainty and support demand for safe havens. Elevated energy prices are reinforcing inflation concerns and prompting markets to scale back expectations for Federal Reserve rate cuts. As a result, the USD remains supported, with geopolitical developments driving near-term direction. Global equities are lower in volatile trading as investors remain cautious amid the ongoing Middle East conflict. Uncertainty around the war’s outcome and rising oil prices are fuelling inflation concerns. This is reinforcing expectations that central banks may delay easing or tighten policy, keeping sentiment fragile. Elsewhere, oil prices rally amid ongoing Middle East tensions and persistent supply concerns, supporting the broader energy complex. Meanwhile, gold and Bitcoin hold steady, as investors adopt a cautious stance while awaiting further geopolitical developments. Investors will be focusing on the US Manufacturing & Services PMI reports, alongside the US ADP Employment, Nonfarm Productivity, and Unit Labour Costs, to help provide direction for currency markets.

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In the news. Iran launches missiles at Israel and the Gulf states. Japan's SMFG explores possible takeover of Jefferies. Trump plays down the prospect of a diplomatic end to the Iran war. China's leaders hunt for strategic gains from the US quagmire in Iran. Zelensky's row with MPs jeopardizes reforms linked to IMF and EU loans. The EU and Australia clinch trade and security pacts. War sparks 'panic buying' of aluminium among global carmakers. Danish premier Frederiksen poised to retain power as right splinters. Smith-Carney pipeline deal to miss early deadlines, premier says. Oil rises as Brent climbs back above $100, amid fading optimism over Iran war de-escalation.

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In currency markets. Against the US Dollar, global currency markets come under renewed selling pressure as fading hopes of de-escalation in the Iran war drive safe-haven demand for the greenback. Risk-sensitive and emerging market currencies are particularly vulnerable amid rising energy prices and deteriorating sentiment. The Indian Rupee has hit a record low, near 94 per dollar, pressured by sharp capital outflows and concerns that prolonged energy disruptions will weigh heavily on the economy. CNY slips 0.15%, while Asian currencies weakens 0.4% on average against the USD. Trading currency turns negative, with ZAR tumbles 0.8%, PLN & AUD weakens 0.5%, NZD, MXN, NOK & CZK retreat 0.3%, KWD & DKK ease 0.2%, and JPY, CHF & SEK are flat against the USD.

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In commodity markets. Oil & Coffee prices rally 2%. Natural Gas prices gained 0.7%. Gold prices firmed 0.5%. Silver prices strengthened 1.3%. Copper prices tumbled 1.2%. Soybean prices eased 0.3%, and Wheat prices are up 0.2%.

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CAD weakens overnight, settling below two-month lows following an escalation in the US–Iran conflict, which has boosted safe-haven demand for the US Dollar. Despite this, CAD outperforms its G10 peers, finding support from strengthening oil prices amid ongoing supply concerns. The Loonie remains caught between commodity-driven support and broader USD strength, leaving the near-term outlook mixed as geopolitical risks continue to dominate sentiment.

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EURCAD eases toward 1.5900 as strengthening oil prices support the Canadian Dollar. Elevated crude and geopolitical tensions underpin CAD, outweighing support for the Euro from ECB rate hike expectations. Softer Eurozone data and stagflation risks further pressure the cross, keeping the near-term bias to the downside.

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EUR retreats below 1.1600 after the Eurozone Composite PMI fell to 50.5, highlighting slowing growth and rising stagflation risks. The weaker data adds pressure on the Euro, while cautious sentiment around the Middle East conflict supports the US Dollar. Near-term direction will depend on US data and further geopolitical developments.

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GBPEUR holds steady above 1.1550, with the Pound maintaining a modest edge over the Euro. Sterling remains supported despite softer rate expectations, as the bar for further BoE tightening is seen as high. Meanwhile, downside in GBP/EUR is expected to be limited, with key support levels holding for now.

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GBP tests the 1.3400 level as GBP/USD comes under pressure amid a cautious market mood and firmer US Dollar. Sterling is weighed down by weaker UK PMI data, pointing to slowing growth momentum. While the BoE maintains a cautious hawkish stance, softer activity data is limiting upside, keeping the near-term bias to the downside.

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