The Morning Update

The USD remains steady, oil prices are flat, equity markets are down, and US yields are mixed on hawkish rate comments. Currency markets remain sidelined, while equity markets edge lower as markets await Fed Chair Powell's testimony and the ECB rate decision on Thursday. Atlanta Fed President Bostic dampened market optimism on Monday after he said he expected the first interest rate cut in Q3 to be followed by a pause. Investors now expect Fed Chair Powell to double down on the message that the Fed will keep interest rates higher for longer under the current economic conditions. In Europe, the ECB is expected to hold interest rates on Thursday. ECB President Lagarde is anticipated to maintain her rhetoric that it is too early to cut interest rates. Elsewhere, US yields slipped after buyers shied away from the 3 & 6-month bill auctions amid uncertainty ahead of Fed Chair Powell's testimony. Bitcoin eased to $66k after approaching a record high near $69k. Oil prices slipped from early gains after underwhelming China reforms. In focus today, the US ISM Services PMI, S&P Global Composite & Services PMI, Factor Orders, and Fed Barr speech will help provide intraday direction to currency markets.

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In other news. China sets 'an ambitious 5% growth target and flags risks to the economy. Sticky services inflation emboldens ECB to resist calls for rate cuts. Gaza ceasefire talks end with no breakthrough, with the Ramadan deadline looming. Ukrainian sea drones damage Russian Black Sea fleet patrol ship near Crimea, Ukraine says. The EU aims to shift the European arms industry to "war economy mode." Poised for accession, Sweden joins NATO drills in reshaped north. US Funding bill blocks China from buying oil from Strategic Petroleum Reserve. Apple's iPhone sales in China plunged 24% in the first six weeks of 2024. Tesla shares extend losses on demand worries in China.

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In currency markets. Currency markets remain sidelined as investors are cautious ahead of Thursday's Fed Chair testimony and the ECB interest rate decision. CNY and Asian currencies are flat on average vs. USD. Trading currencies are mixed, with AUD & SEK weakening by 0.3%, NZD & CHF easing by 0.2%, MXN & NOK are flat, JP up by 0.1%, and ZAR strengthened by 0.2% vs USD.

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In commodity markets. Oil prices are flat, Natural Gas prices strengthened by 0.8%, Gold and Copper prices firmed by 0.3%, Silver prices gained by 0.6%, while Wheat and Soybean prices dropped by 0.35%.

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CAD continues to range trade within 1.3550-1.3600 as investors remain sidelined ahead of Wednesday's BoC interest rate decision. Markets expect the central bank to keep rates on hold at a 22-year high of 5%, with the BoC expected to maintain rhetoric that it is too soon to ease rates and it will continue to monitor economic conditions. Expectations have shifted that the BoC will likely ease in June from original expectations that the Bank would ease by April. Intraday, the US ISM Services PMI will be today's primary currency market driver.

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EURCAD steadies at three-month highs as both markets await their respective central bank decisions.

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EUR remains within a tight trading range ahead of the US PMI data releases. Euro finds some support on better-than-expected PMI results, while the USD firmed as risk-averse markets grow. Domestically, German, French, and European Services & Composite PMI data beat expectations. Italy missed its Services PMI expectations in February, but its GDP y/y Q4 came in better than expected. Investors continue on the sidelines ahead of the ECB interest rate decision and the Fed Chair testimony on Thursday. Intraday US ISM Services PMI, expected to ease slightly to 53 vs 53.4, will be the primary focus for markets today.

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GBPEUR holds steady as focus remains on Wednesday's UK Budget and Thursday's ECB rate decision.

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GBP remains capped at 1.2700 heading into the US PMI data release. Increasing risk-off sentiment amid renewed China economic concerns and expectations that the Fed will keep interest rates on hold through 2024 is maintaining pressure on the pound. Domestically, the S&P Global PMI service beat expectations, while the composite PMI fell short of expectations. The IFS warns Chancellor Hunt that 'planned" new tax rules could backfire as chancellor 'to freeze fuel duty.' The Chancellor also anticipates cutting national insurance or income tax by 2p in tomorrow's budget. The US PMI & Fed Barr comments will help provide intraday direction to the pound.