The Morning Update

The USD holds steady, oil prices rally, while equity markets and US yields are mixed ahead of the Fed minutes and easing risk sentiment. The USD steadies ahead of the Fed minutes and the start of the annual Jackson Hole symposium for clues on the US monetary policy path. Global equities are mixed, with markets coming under pressure after a tech-led selloff in the US. European markets declined after closing near all-time highs on Tuesday, as investors shifted from the tech sector to defence and real estate sectors. "As valuations get pushed to a historical high, traders and hedge funds tend to pull back," said Anna Wu at VanEcK. "Today's fall is pre-Jackson Hole caution and profit-taking." Elsewhere, oil prices rally as uncertainty remains ahead of the next steps in the Ukraine peace talks. Bitcoin prices improve, retesting $113,000, while gold edges up but hovers near three-week lows before the Jackson Hole summit. Today, focus on the FOMC minutes and speeches by Fed's Waller and Bostic, which will help guide the currency markets.

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In the news. Trump says the US could play a role 'by air' in the Ukraine security guarantee. Spain to declare disaster zones after an area twice the size of London is burnt.  UK inflation rises to the highest since early 2024 at 3.8%. European shares fall as tech selloff casts gloom over markets. Trump again attacks the Fed Chair, says Powell 'hunting' the housing industry. Air Canada cabin crew win breakthrough with pay for pre-flight work. Lagarde sees slower growth with some trade uncertainty lingering. Canada's Conservative leader, Pierre Poilievre, to re-enter Parliament. US & NATO planners start to craft Ukraine security guarantee options.

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In currency markets. NZD tumbles over 1% after the central bank cut rates to three-year lows and the central bank's dovish comments. The USD, GBP and EUR are sidelined, while other G10 currencies are mixed, with investors on the sidelines heading into the annual Federal Reserve symposium in Jackson Hole. CNY is up 0.1%, while Asian currencies on average are flat against the USD. Trading currencies are mixed, with NZD tumbling 1.15%, AUD weakened 0.3%, PLN & CZK eased 0.1%, KWD & DKK flat, CHF and MXN up 0.1%, JPY, and SEK & NOK gained 0.2% against the USD.

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In commodity markets. Oil prices rallied 1.1%. Natural Gas prices tumbled 1%. Gold prices firmed by 0.3%. Silver prices weakened by 0.7%. Copper prices are flat. Wheat prices are up 0.1% and Soybean prices dipped 0.1%.

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CAD extends losses towards three-week lows after Tuesday's Consumer Price Index report saw inflation levels ease to 1.7% raising expectations the Bank of Canada would cut interest rates in Q3 2025. Investors see a 39% chance of a rate cut from the BoC at its next policy decision on September 17, but are increasingly expecting the BoC to cut at its October meeting. Today sees the release of the CAD New Housing Price Index, which is unlikely to impact the loonie. Investors will be focused on the US FOMC Minutes and the comments from the Jackson Hole symposium to help provide direction to currency markets.

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EURCAD extends gains to its highest level since 2009 on a combination of diverging ECB/CAD interest rates and ongoing CAD/US trade concerns.

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EUR holds steady above 1.6150, with investors sidelined ahead of the Fed minutes and cautious ahead of the Fed symposium. The euro holds onto its weekly gains as investors await this week's Fed symposium and digest the talks on the Ukraine peace talks. In a speech today, ECB President Lagarde commented that the eurozone economy is likely to experience slower growth in Q3, with questions remaining over global trade despite recent deals with the US reducing uncertainty. ECB officials are expected to leave the deposit rate at 2% for the remainder of 2025. Intraday, the U.S. Fed minutes and Fed speech will be the primary drivers for markets today.

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GBPEUR holds steady in early trading after the latest UK inflation report is expected to see the BoE pause further rate cuts in Q3.

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GBP bounces off five-day lows, retesting 1.3500 following higher-than-expected UK inflation levels. The pound bounces off weekly lows after today's inflation report spiked to its highest level in over 15 months. The UK house prices increased by 3.7% year-over-year in June, and UK inflation levels rose to their highest point since early 2024 at 3.8%. The BoE cut interest rates in August, but only after a narrow 5-4 vote by policymakers. With the recent spike in inflation levels, it is expected that the BoE will likely keep rates on hold for the rest of 2025.

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