The Morning Update

The USD firmed, oil prices eased, while equity markets and US yields are mixed as markets steady ahead of the Fed's rate decision. The US dollar has found some footing after this week's sharp selloff, but sentiment remains fragile as markets await the Federal Reserve’s policy decision. While the greenback has edged up from four-year lows, political pressure on the Fed and speculation around leadership changes continue to weigh on confidence. Investors remain cautious, with the dollar’s near-term direction hinging on Chair Powell’s tone and any signals on policy independence. Global equity markets are mixed, with US futures higher as technology stocks lead gains ahead of the Federal Reserve’s policy decision and a wave of megacap earnings. Nasdaq and S&P 500 futures are pushing toward record levels, supported by strength in semiconductors and AI-linked names, while European stocks lag on weakness in luxury shares. Asian markets were firmer, driven by tech optimism and strong earnings momentum. Elsewhere, oil prices eased on softer demand signals, while gold extended its rally to a fresh record above $5,300 an ounce on continued safe-haven demand. Bitcoin firmed, pushing back above the $89,000 level as risk appetite in digital assets improved. In focus today are the Fed and BoC interest rate decisions, which will drive intraday currency market direction.

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In the news. The ECB would need to act if the euro keeps gaining, says Austria's central bank governor. The US consumer confidence plunges to a 12-year low. Gold climbs to a record high after the USD's slide. "Pivot to China" gathers pace as Starmer lands in Beijing. Carney says almost nothing is normal in the US. Trade pact review starting soon. Amazon cuts 16,000 jobs globally to undo pandemic-era hiring amid AI push. The Bank of Canada is likely to hold rates amid trade tensions. Carney denies walking back Davos speech in phone call with Trump. Canada's population could hit 76 million by 2075 in a high-growth scenario, according to Statistics Canada.

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In currency markets. The US dollar strengthened against the Swiss franc as earlier safe-haven demand faded. The Norwegian krone also weakened versus the greenback, pressured by softer oil prices and a more cautious risk backdrop. Markets remain guarded ahead of the Federal Reserve’s policy decision, keeping currency moves relatively contained. CNY firms 0.1%, while Asian currencies on average slipped by 0.1% against the USD. Trading currencies come under pressure, with CHF & CZK tumbling 0.65%, SEK, PLN & NOK weakened 0.45%, DKK falling 0.35%, ZAR, KWD, MXN & JPY slipping 0.15%, while AUD & NZD are up 0.1% against the USD.

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In commodity markets. Oil prices eased by 0.4%. Natural Gas prices tumbled 8%. Gold prices strengthened 3.6%. Silver prices rallied 6.4%. Copper & Wheat prices gained 1.3%. Coffee prices are flat, while Soybean firmed by 0.9%.

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CAD is strengthening to its highest levels since July 2025, supported by broad US dollar weakness and improving domestic sentiment. Signs of a revival in Canada’s IPO market are reinforcing confidence in the economic outlook, while the Bank of Canada is expected to keep rates unchanged at 2.25% and maintain a cautious, wait-and-see stance. With markets still pricing a small chance of BoC tightening later this year and commodities offering support, the loonie remains underpinned ahead of the BoC and Fed decisions.

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EURCAD weakens in early trading as the euro eases back from recent highs, while the CAD finds support from its relative resilience and steady domestic backdrop. Markets are increasingly focused on central bank guidance, with the Bank of Canada expected to hold rates steady and reinforce its wait-and-see stance, contrasting with lingering uncertainty around the Federal Reserve’s outlook. This policy mix, alongside firmer commodity prices, is keeping the CAD underpinned and pressuring EUR/CAD lower.

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EUR has retreated from recent highs, easing back as investors reassess the implications of its sharp appreciation over recent sessions. ECB officials, including Austria’s central bank governor, have signalled they are closely monitoring euro strength, noting that a firmer currency could dampen inflation and eventually influence the policy outlook, even if the exchange rate is not a direct target. With the focus now squarely on the Federal Reserve’s decision, near-term moves in the euro are likely to be driven by shifts in Fed guidance and the resulting transatlantic policy divergence.

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GBPEUR edges higher in early trading as Sterling finds modest support against a softer Euro. Cautious messaging from ECB officials has tempered euro demand, while the Pound remains underpinned by expectations that the Bank of England will proceed carefully with any rate cuts. With little fresh UK data, near-term moves are likely to be driven by incoming Eurozone sentiment and growth indicators.

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GBP weakens in early trading against the US Dollar, slipping below 1.3800 after failing to sustain gains near recent multi-year highs. The move reflects a modest rebound in the Dollar as investors pare USD shorts and position cautiously ahead of the Federal Reserve’s policy decision later today. While recent UK Retail Sales and PMI data continue to underpin Sterling, near-term direction is likely to be driven by the Fed’s tone and broader risk sentiment.