The Morning Update

The USD slips, oil prices are lower, equity markets are down and US yields are mixed ahead of the Fed rate decision. The USD steadies near two-week highs, oil & equity markets are down, while the Euro edges higher ahead of the Fed decision today and the ECB interest rate decision tomorrow. The Federal Reserve policymakers appear to be set to raise interest rates by 25 bps to a 22-year high, its 11th increase since 2022. Investors will be focused on Fed Chair Powell's press conference at 2.30 pm EST for clues about how determined the central bank is to pause or if it could raise again in 2023. Today's focus will be the Fed Interest Rate decision, corporate earnings from Alphabet, META & Microsoft, as well as US  Home Sales and EIA Crude Oil Stocks Change to provide intraday direction to markets.

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In other news. Russia hits out at the West for pressing African leaders to miss the St. Petersburg summit. UK NatWest chief Alison Rose steps down after Nigel Farage row. Spain's 'power vacuum' threatens the economy and EU progress on Ukraine-FT. Deutsche bank flags cost cuts as investment bank slump lowers profit. Russia's Danube attacks tighten the noose on Ukraine's grain sector. North Korea to welcome China & Russia with military display after pandemic isolation. Italy storms: North hit by hail and rain as Sicily burns-BBC.

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In currency news. USD holds steady, and Euro firms heading into their respective central bank rate decisions. AUD slips as its domestic inflation slows down, lessening rate hike risks. Major currencies consolidate ahead of the Fed rate decision today. CNY weakens 0.25%, while Asian currencies are down 0.1% on average vs USD. Trading currencies are mixed ahead of the Fed decision with the ZAR tumbling 0.8%, AUD & NOK down 0.4%, SEK weakening 0.3%, while the NZD & MXN are flat, CHF firms 0.3%, and JPY strengthening 0.4% vs USD.

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Oil prices retreat ahead of the Fed Interest rate decision and a spike in US crude supplies. CAD weakens through 1.3200 as markets consolidate ahead of the US Federal Reserve rate decision. The Fed is expected to hike interest rates by a quarter percent, but investors remain cautious ahead of the Fed Chairs' press conference as they look for signs of pausing or if the Fed sees the need for more hikes in 2023. If the Fed Chair takes a hawkish tone at the press conference we could see the loonie retest 75 cents (1.3333).

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EURCAD strengthens as investors unwind short Euro positions ahead of the ECB rate decision on Thursday.

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EUR rebounds from weekly lows to retest 1.1100 as investors rebalance ahead of the ECB rate decision on Thursday. Euro grinds higher from 6 days of weakness, bouncing off Tuesday's lows of 1.1020 heading into Thursday's ECB interest rate decision. We anticipate the ECB will only be able to hike 25 bps on Thursday as faces easing inflation levels and the increasing danger of plunging the Eurozone into recession. Intraday the Fed rate decision and the Fed Chairs press conference will be the primary driver for currency markets today.

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GBPEUR holds relatively steady as both countries are heading into the interest rate decisions with the ECB on Thursday and the BoE next week.

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GBP edges above 1.2900 as the USD slips ahead of the Fed policy decision. The pound took advantage of a weakening USD snapping a 7-day losing streak, despite a cautious risk mood and markets took profits ahead of the Fed rate decision today. We anticipate any GBP strength will be short-lived following easing domestic inflation levels and weakening PMI seeing markets now anticipating the BoE hike of just 25 bps vs previous expectations of a 50 bps hike in August. Markets are more concerned about the damage that the increasing BoE rate hike will do to the British economy as inflation levels start to ease. Intraday it will be all on the Fed's decision and comments to drive intraday market direction.

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