The Morning Update

The US$ is flat, oil prices are steady, equity markets are down, while US yields rise as markets await the Fed Chairs' testimony. The risk-averse sentiment is helping the US$ hold its ground as markets await the Fed Chairman Powell's testimony before the House Financial Services Committee. Equity markets struggle after the UK's inflation stuck at 8.7% higher than forecast and could justify a more hawkish tone by Jerome Powell heading into two days of testimony to Congress. Today, alongside the key Fed testimony investors will also monitor CAD Retail Sales, and speeches from FED Mester, Jefferson & Cook, ECB Schnabel , German Buba President Nagel to help provide intraday direction to currency markets.

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In other news. China lashes back as President Biden labels Premier Xi a 'dictator'. EIB Chief calls on EU states to rebuild Ukraine now. Chinese spy facilities in Cuba are a 'serious concern' says Secretary of State Blinken. India's PM Modi embarks on a US state visit to deepen defense and tech ties. UK government debt surpasses GDP for the first time in 62 years. Russia claims it intercepted drones en route to Moscow: Ukraine and allies focus on reconstruction. The IMF urges Canada to bring back debt anchor and keep fiscal policy tight.

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In currency news. CNY dips to 7-month lows on lack of stimulus news. Commodity currencies face pressure on China's growth concerns. US$ holds steady heading into Fed Chair's testimony. CNY slips 0.1%, While Asian currencies are flat vs US$. Trading currencies are mixed with JPY down 0.35%, AUD & NOK weakening 0.25%, while NZD, ZAR & CHF are flat, and SEK strengthening 0.25%.

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Oil prices are steady as investors appear sidelined ahead of the Fed Chair's testimony. C$ holds near monthly highs with Oil & US$ steady as markets are sidelined ahead of the Fed Chairs two days of testimony. The CAD continues to face headwinds from slowing China growth which is expected to reduce demand for commodities. In focus today CAD Retail Sales m/m April which is expected to rise to 0.2% up from -1.4% in March and the BoC minutes for its policy decision two weeks ago.

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EURCAD holds steady as markets are sidelined ahead of the FOMC Chair testimony.

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EUR remains steady within its 1.09-1.0950 trading range. The currency pair is mirroring the US$ which is sidelined as investors remain cautious ahead of Fed Chair Jerome Powell's testimony. Hawkish ECB comments continue to provide underlying support to the Euro, according to Bloomberg markets are pricing in a 4% ECB terminal rate by October. Intraday sees a light economic docket, so the focus will be primarily on Fed Chairs' comments to provide intraday direction.

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GBPEUR tumbles after UK inflation holds at 8.7% and markets await Powell's testimony.

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GBP dropped from 1.2800 to 1.2700 after hot UK inflation increases recession fears. The UK's core inflation increased to 7.1 y/y in May, rising to a 31-year high as UK government debt surpasses GDP for the first time in 62 years. The stubborn UK inflation levels holding at 8.7%, Hunt economic advisor: the Bank of England 'must create recession' to fight high inflation; mortgage rates rise again. Combined with last week's strong wage inflation and today's high CPI virtually confirmed that the BoE will hike interest rates tomorrow. Today US Fed Chair Powell's testimony will help drive intraday direction to currency markets.

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