The Morning Update

The USD holds gains, oil continues to strengthen, equity markets are lower, and US yields rise ahead of Wednesday's Fed rate decision. The USD edged higher to a two-week high as elevated oil prices pushed Treasury yields higher and markets priced a near-certain Federal Reserve rate hike on Wednesday. Global equity markets moved lower as elevated oil prices deepened the global bond selloff, with the U.S. 10-year Treasury yield climbing above 5% to its highest level since 2007. Higher energy costs, persistent inflation concerns and renewed caution around the AI trade weighed on risk sentiment, while investors remained focused on Wednesday’s Federal Reserve decision and the prospect of further policy tightening. Elsewhere, oil prices extended their gains as renewed Middle East supply concerns kept crude near recent highs, while gold came under renewed selling pressure as rising Treasury yields and a firmer U.S. dollar reduced demand for the metal. Bitcoin also weakened as broader risk aversion and fading optimism around near-term U.S. crypto legislation weighed on sentiment. Today sees a light economic calendar, with US ADP Employment Change 4-week average, CAD Wholesales Sales, and NY Empire State Manufacturing Index to help provide direction ahead of tomorrow's Fed key interest rate decision.

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News Headlines. 10-year Treasury yield rises to highest since 2007 as Fed rate-hike expectations rise. Iranian foreign minister will head to China for talks, as the Pentagon reveals the war's financial cost. The Supreme Court rejects Trump's mail-in ballot restrictions for midterms. China tightens control of overseas travel in sweeping new laws. TSE futures retreat as bond selloff deepens; Fed decision in focus. Canadian home sales fall in August as economic uncertainty grows. Brent rises above $107 as attacks and pipeline outages deepen Saudi supply concerns. Carney says a US deal is possible; the blow-up helped clarify 'red lines'.

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In currency markets. Against the USD, major currencies remained under pressure as the greenback held near two-week highs ahead of Wednesday’s Federal Reserve decision, with markets pricing a more than 94% chance of a rate hike. GBP eased toward 1.3400 ahead of Thursday’s Bank of England meeting, where rates are expected to remain unchanged, while JPY weakened back through 155 despite expectations for a BoJ hike on Friday. AUD and NZD also slipped as elevated oil prices, rising global yields and softer risk sentiment continued to favour the U.S. dollar.

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In commodity markets. WTI +2.13% | Nat Gas -0.45% | Gold -0.87% | Silver -0.85% | Copper -0.24% | Palladium -0.55% | Coffee -0.72% | Cocoa -3.52% | Soybeans -0.27% | Wheat -0.73%

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CAD held near multi-week lows against the U.S. dollar after Canadian inflation matched expectations, leaving the loonie vulnerable to broad USD strength ahead of Wednesday’s Federal Reserve decision. Headline CPI held at 3.0%, keeping inflation above the Bank of Canada’s target and expectations for further BoC tightening alive, but rising U.S. yields and ongoing U.S.-Canada trade tensions continue to weigh on the currency. Elevated oil prices are providing some underlying support, although the near-term focus remains firmly on the Fed.

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EURCAD held broadly steady in early trading, with neither today’s ECB Cipollone remarks nor Canadian wholesale sales expected to materially shift the cross. The euro remains under some pressure after mixed Eurozone sentiment data, while CAD is still supported by firm oil prices but capped by broader U.S. dollar strength and trade concerns. With both sides lacking a clear catalyst, EURCAD is likely to remain sidelined ahead of tomorrow’s Federal Reserve decision, which should be the key near-term driver for broader FX markets.

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EUR remained under pressure near one-month lows around 1.1520 as a firmer U.S. dollar and expectations for a Federal Reserve rate hike on Wednesday continued to dominate trading. Mixed Eurozone data, including a softer-than-expected German ZEW sentiment reading despite a stronger trade surplus, offered little support, while elevated oil prices remain an additional headwind for the region’s growth outlook

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GBPEUR eased slightly in early trading after reaching a two-week high yesterday, as investors digested softer UK labour-market conditions ahead of Thursday’s Bank of England decision. The BoE is widely expected to hold rates at 3.75%, although markets continue to price in a strong chance of further tightening later this year, while the euro remains supported by the ECB’s more hawkish stance following last week’s rate hike.

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GBP remained under pressure near five-week lows around 1.3465 after mixed UK labour data showed unemployment holding at 4.9% but a sharper-than-expected rise in jobless claims. The Bank of England is expected to leave rates unchanged on Thursday, while markets continue to price further tightening later this year; in contrast, the Federal Reserve is widely expected to raise rates tomorrow, keeping near-term pressure on GBP/USD.