The Morning Update

The USD weakens, oil prices ease, equity markets rise, and US yields are mixed due to optimism about Fed easing. The USD continues under pressure, falling to a two-week low after a mild reading on US inflation took expectations of a Fed rate cut in September to 96%. Global equity markets reached record highs as risk-on sentiment increased, driven by rising expectations of a Federal Reserve interest rate cut, which pushed Asian equities to their highest level since February. "The bull case remains a convincing one, with earnings growth solid, and a cooler tone on trade continuing to prevail, all the while dovish policy expectations help to provide a cushion against any worries that the economy may be softening under the surface," said Michael Brown at Pepperstone. Oil prices ease on signs of slowing US demand, with the IEA noting that supply is expected to overtake demand in H2 2025. Bitcoin hold steady below $120,000, while gold prices firm and sliver prices rally. Today sees a quiet economic calendar, so focus will be on Fed's Berkin, Goolsbee and Bostic to help provide some guidance to currency markets.

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In the news. Global stocks extend rally after the US inflation data lifts sentiment. The White House downplays expectations for Trump-Putin Alaska summit. Wildfires rage across southern Europe as temperatures top 40°C. Jellyfish swarms force a French nuclear plant to shut. Air Canada says talks with union at 'impasse' as 'devastating' strike looms. Trade war with China could have a devastating impact on Canadian canola farmers. Trump's takeover of Washington law enforcement begins as National Guard troops arrive. Ontario Teachers cuts US Dollar exposure by 56% as the loonie gains. Trump tells Goldman Sachs CEO to replace the bank's economist over tariff predictions.

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In currency markets. The Thai central bank cuts interest rates to their lowest in two years to support domestic growth. Elsewhere, the Bank of Japan faces pressure to abandon its obscure inflation gauge, clearing the way for higher interest rates. The Mexican Peso soars as 'carry trade' reignites after tariff delays. CNY up 0.1%, while Asian currencies firmed by 0.3% on average against the USD. Trading currencies rebounded, with KWD flat, NOK, PLN, MXN, JPY & SEK firmed 0.3%, ZAR, CZK, AUD & DKK strengthened 0.45%, and CHF and NZD rallied 0.55% against the USD.

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In commodity markets. Oil and Natural Gas prices eased by 0.4%. Gold prices gained by 0.45%. Silver prices rallied 1.6%. Copper prices firmed by 0.25%, Wheat is flat, and Soybean prices strengthened by 0.8%.

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CAD rebounds from weekly lows, finding support after the US Inflation report didn't surprise to the upside, maintaining expectations of a Fed interest rate cut at its September meeting. Uncertain prospects for US tariffs on Canadian goods, threats from China on Canadian Canola, and weak Canadian jobs continue to keep pressure on the loonie, which continues to underperform against its G10 peers. The focus will be on BoC minutes, with investors only expecting a 50% chance that the central bank will cut rates in October.

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EURCAD has increased by nearly 1% over the past month and almost 7% year-over-year, following the EU's securing of a trade deal with the US and expectations that the ECB will keep domestic rates on hold in the second half of 2025.

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EUR test multi-week highs, rallying towards 1.1750 amid a softening USD. The euro extends its gains as risk-on sentiment improves, with expectations growing to 96% that the Fed will cut rates at its September 17th meeting. Domestically, German inflation levels held steady at 1.8%, and Spanish inflation levels stalled at 2.7%. We expect the euro to maintain recent gains due to the absence of US market-moving economic data releases today, and anticipation that Fed speakers will adopt a more dovish tone, favouring a rate cut in September.

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GBPEUR holds relatively steady, with currencies sidelined due to the lack of high-tier economic data releases and caution ahead of Thursday's key UK growth data.

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GBP strengthens against a softening USD as risk-on sentiment sees the pound rebound to three-week highs. The pound extends gains, driven by a weakening USD and on optimism that the UK economy will post marginal growth on Thursday. The UK Gross Domestic Product (MoM) is forecasted to rise to 0.1%, and YoY Q2 is expected to print at 1%. The pound has rallied from 1.3280 on August 1st to 1.3570 today, with expectations that the Bank of England could pause further easing as sticky inflation continues to cause concern for the BoE. With expectations of dovish comments from the Fed speakers today, we anticipate the pound will hold onto recent gains, heading into tomorrow's UK GDP report.

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