The Morning Update

The USD is steady, oil prices strengthen, equity markets advance, and US yields are mixed amid increased geopolitical tension. The U.S. dollar is holding steady as investors await key inflation data that could cement expectations of a Fed rate cut next week, following weaker labor market figures. Meanwhile, concerns are mounting as Poland and NATO forces scramble to intercept Russian drones, and tensions deepen after Israel’s strike in Qatar. U.S. equities are set to climb after Oracle’s 30% surge on a strong outlook boosted confidence in AI-driven growth. Focus now turns to U.S. inflation data, with traders betting it will stay contained enough to allow the Fed to cut rates and extend this year’s rally. European equities also advanced, with Inditex lifting retail shares and the Stoxx 600 up 0.3%. “The prospect of far easier financial conditions remains supportive,” said Geoff Yu, FX and macro strategist for EMEA at BNY Mellon. “Barring any really large upside shocks in today and tomorrow’s PPI/CPI figures, it’s really a case of ‘as you were’.” Elsewhere, oil prices advance following Israeli attacks on Qatar, Bitcoin rallies to $112,300, and gold and silver both strengthen in early trading. In focus today, US Producer Price Index ex Food & Energy, and SNB Chairman Schlegel speech will help drive currency market direction.

‍

In the news. NATO force shoot down drones over Poland. Trump tells the EU to hit China and India with 100% tariffs to pressure Putin. Oracle market value set to jump $200bn on AI surge. Judge rules Trump cannot fire Fed's Lisa Cook for now. Apple launches skinny iPhone as it holds prices despite tariff costs. Israel says it will target enemies 'everywhere' after attack on Hamas in Qatar. The EU moves to freeze some funding to Israel over war in Gaza. Macron appoints ally Sebastien Lecornu as France's prime minister. Carney's 1st budget to show Canadians the 'cost to sovereignty'. Carney condemns 'intolerable' Israeli strike on Qatar that killed Hamas officials.

‍

In currency markets.The dollar holds near a seven-week low on increasing expectations of Fed rate cut next week, while commodity-linked currencies like the Aussie and kiwi gained. The yen steadies, and the euro edged up but was capped by political uncertainty in France and concern following NATO downing drones in Poland. CNY & Asian currency markets are flat on average against the USD. Trading currencies are mixed, with MXN, PLN & ZAR eased by 0.1%. CZK, KWD, DKK, CHF and JPY are flat, AUD, NZD and SEK gaining 0.3%, and NOK strengthening 0.5% against the USD.

‍

CAD continues under pressure, easing in early trading as trade deal uncertainty and recession-level youth employment underscored weakness in the domestic outlook. A 0.8% rise in crude oil, Canada’s key export, offered little support as investors kept bearish positions ahead of next year’s CUSMA review. Markets are watching today’s U.S. PPI inflation report for guidance on Fed policy, with expectations that any signal on easing will ripple through to the loonie. Investors continue be cautious ahead of next week’s Bank of Canada meeting, where officials must balance slowing growth with lingering inflation pressures.

‍

EURCAD has climbed to its highest levels since March 2018, reaching around 1.6052, as the euro gains amid ECB caution and weaker commodity-linked Canadian dollar dynamics. Meanwhile, policy divergence between the central banks remains a key driver: the ECB has paused further easing, maintaining current rates, while the Bank of Canada appears close to concluding its cutting cycle, hinting at limited further monetary accommodation.

‍

EUR is steady straddling 1.1700 in European trading as investors await the U.S. PPI report, which could prove pivotal for Fed rate cut expectations. Persistent political uncertainty in France and Poland’s interception of Russian drones have added geopolitical headwinds, keeping the euro capped despite dollar softness. ECB officials, including Villeroy de Galhau and de Guindos, have stressed the need for cautious policymaking, noting that while inflation remains manageable, external shocks such as U.S. trade tensions and broader geopolitical risks could undermine growth. With traders reluctant to place fresh bets ahead of key data, the pair remains range-bound but could see sharper moves once inflation figures and policy guidance provide clearer direction.

‍

GBPEUR edges higher in early trading, supported by resilient UK data and expectations that the BoE will keep rates on hold. The euro remains weighed down by geopolitical headwinds, with political instability in France and rising security tensions in Eastern Europe capping upside momentum.

‍

GBP trades slightly higher above 1.3500 as markets position for a Fed rate cut at next week’s meeting, with attention on today’s U.S. PPI release. The pound is supported by risk-on flows, though geopolitical tensions remain a potential drag. Focus shifts to Friday's UK July GDP and industrial data, which are expected to stagnate after June’s expansion. Softer readings would bolster expectations for additional BoE easing later this year, even as policymakers are likely to hold rates at 4% next week.