The Morning Update

The US$ eases, oil prices are up, equity markets gain, while US yields are mixed as markets count down the Fed decision. The US$ extends its losses, while equity & commodities prices gain in early Wednesday trading as investors await the Federal reserve's policy decision and the following press conference. The Fed policymakers are expected to pause/skip their hiking of interest rates for the first time since March 2022, while retaining a tightening bias that signals a possible future hikes as soon as July. Chairman Powell has signaled the Fed would prefer to wait to evaluate the impact of previous rate hikes on the economy as well as recent banking failures on credit conditions. Following the Fed markets will be monitoring today US PPI, IEA Oil market report, Thursday China Property prices, retail sales, Industrial production, ECB rate decision, US Initial jobless claims, retail sales & Friday Bank of Japan rate decision & US University of Michigan consumer sentiment.

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In other news. Former President Trump pleads not guilty in federal documents case. Toyota shareholders vote down climate resolution. Ukraine says Russian missile attacks kill three in Odesa, three in Donetsk. Retail & Films drive modest growth in UK economy. China rebukes US in phone call ahead of Blinken's planned Beijing trip. Sudan slides further into war as diplomacy stalls. China readies for stimulus as economic recovery founders. Belarus starts taking delivery of Russian nuclear weapons. In the UK, Vodafone, Hutchinson unveil mobile merger.

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In currency news. The US$ eases as markets await the Fed interest rate decision. CNY stalls near 6-month lows and remains vulnerable to further weakness as its domestic economy continues under pressure. Commodity currencies extend gains as risk-on sentiment improves. CNY up 0.1% while Asian currencies are flat on average vs US$. Trading currencies improve with MXN & NOK are higher 0.15%, JPY & CHF are up 0.25%, AUD & NZD gain 0.35%, ZAR rallies 0.9%, while outlier SEK weakens 0.25% vs US$.

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Oil prices extend gains heading into the Fed decision and the IEA oil market report. C$ continues to strengthen notching up over 2% gains vs US$ in June taking the loonie to a fresh 8-month high. The combination of improving risk sentiment, firming commodity prices, the BoC surprise rate hike and the anticipated interest rate "skip" from the Fed today. Intraday the Fed rate decision will be the primary driver to markets today.

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EURCAD slips in early trading, while in June the loonie has extended 1% vs Euro and continues to hold near 4 month lows for the Euro despite heading into an anticipated ECB rate hike on Thursday.

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EUR retests 1.0800 amid a weaker US$ ahead of the Fed rate decision. Weakening US$ and US Treasury bond yields ahead of the FOMC rate decision and the prospect of an ECB rate hike on Thursday is helping support the Euro test recent highs at 1.0800. Intraday markets are looking for the "skip" a rate decision vs taking a pause in rate hikes as markets still expect the Fed to hike two more times in 2023 and the prospect of further Fed rate hikes is capping Euro's ability to extend gains. Today focus will be on the US rate decision and the Fed Chair's comments which will help drive currency markets direction today.

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GBPEUR extends gains to fresh 2023 highs on improving growth & the prospect of higher UK interest rates and despite the anticipated 25bps hike from ECB on Thursday.

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GBP extends gains towards 1.2650 after UK growth data and ahead of the Fed interest rate decision. The UK Chancellor Hunt said the UK has "no alternative" but to hike interest rates in a bid to tackle rising prices. UK growth was modest at 0.2% driven by retail & film, while house builders & estate agents underperformed. The Bank of England is expected to hike rates again on June 22nd in an attempt to slow inflation levels which stands at 8.7% and as UK gilt yield gained 10bps today to 4.75%. Intraday the US rate decision and the Fed Chairs statement will help drive intraday direction.

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