The Morning Update

The USD firmed as oil prices eased, equities traded lower, and bond yields held steady ahead of key upcoming economic data releases. The U.S. government shutdown entered its third week with no resolution, weighing on services and sentiment as key data releases remain delayed. Fed Chair Powell signaled that balance sheet normalization is nearing its end and warned of rising employment risks despite moderating inflation. Bowman, Waller, and Collins echoed a dovish tone, supporting further rate cuts to cushion a softening labor market. U.S.–China trade tensions escalated with new tariffs, export controls, and sanctions, though both sides signaled openness to renewed negotiations. Bitcoin showed modest upward movement, supported by renewed institutional interest through spot ETF inflows, while the market remained cautious amid regulatory actions, including a $15 billion U.S. government seizure related to a crypto scam.

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In the news. The Gaza peace summit in Sharm El Sheikh concluded without Israel or Hamas directly participating, producing a largely symbolic ceasefire declaration. Hamas has partially complied with hostages’ return, while international efforts continue to manage aid and support reconstruction amid ongoing tensions. Newly joined NATO members Finland and Sweden will buy additional U.S. weapons for Ukraine under the alliance’s PURL program, a coordinated effort to provide targeted, high-value military aid, while Finland also plans to supply its own military equipment.

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In currency markets. AUD strengthened on robust economic data and rising commodities, while the NZD softened amid weaker exports and global risk aversion. In Asia, the JPY appreciated on expectations of potential BOJ rate moves, whereas the MYR and CNY edged lower due to trade and domestic growth concerns. Nordic currencies were mixed, with the DKK firm on stable fiscal outlook, the SEK stable, and the NOK modestly weaker. Among trading currencies, the PLN and CZK gained on positive regional data, while the MXN and ZAR retreated amid risk-off sentiment and commodity pressures.

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In commodity markets. commodity futures showed mixed movements: crude oil and natural gas eased on concerns over ample supply and slower demand, while gold and silver strengthened as safe-haven buying picked up amid U.S.–China trade tensions. Copper rose on optimism around potential Fed rate cuts, coffee gained due to dry weather in Brazil, and soybeans and wheat softened amid trade uncertainties and favorable growing conditions.

CAD weakened as economic data pointed to a slowdown, with building permits hitting a 14-month low and trade data delayed due to the U.S. government shutdown. At the same time, Bank of Canada officials emphasized concerns over over-regulation in the financial sector and the need to improve productivity, reinforcing cautious sentiment among investors.

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EURCAD rose as the euro strengthened while the Canadian dollar weakened. Market sentiment was shaped by risk-off tendencies in global equities, uncertainty around the U.S. government shutdown, and dovish signals from central banks, which collectively weighed on commodity-linked currencies like the CAD.

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EURUSD ECB’s Dolenc signaled no immediate need to change interest rates, reflecting a cautious stance on inflation and economic stability. Eurozone growth shows modest resilience, supported by consumption and fiscal easing, while debt concerns and regulatory focus remain on the ECB’s agenda.

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GBPEUR GBP weakened against the EUR amid rising inflation and economic uncertainty in the UK. Concerns over private credit losses and broader economic fragility weighed on sentiment. Meanwhile, the euro remained supported by resilient Eurozone growth, despite ongoing fiscal challenges.

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GBP is currently pressured by lingering U.S. dollar strength and cautious expectations around Fed rate cuts, which limit upside for the pound. At the same time, the Bank of England’s reluctance to implement aggressive rate cuts provides some support, preventing a sharper decline. Short-term direction will remain sensitive to upcoming U.S. and U.K. economic data, including inflation, employment figures, and fiscal signals, which could trigger volatility in the pair.

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