The Morning Update

The USD is unchanged, oil prices weaken, equity markets rebound, and US yields ease ahead of today's Fed decision. The USD held broadly steady ahead of today’s Federal Reserve interest-rate decision, with markets assigning a greater than 90% chance of a 25-basis-point hike and focusing on Chair Warsh’s guidance and updated rate projections. Global equity markets stabilized after several days of selling, with U.S. stock futures edging higher and Treasury yields easing slightly from recent multi-year highs as investors awaited the Fed. Technology shares also recovered modestly, although sentiment remains fragile after the recent bond selloff, elevated energy costs and renewed caution around AI-related valuations. Elsewhere, oil prices weakened after an industry report pointed to higher U.S. stockpiles, while gold strengthened and bitcoin firmed modestly. Today's focus will be on US Retail Sales, followed by the key Fed interest rate decision.

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News Headlines. The EU proposes that Canada become the Bloc's first 'Associate member'. Canada expands tax break to a broad range of investments including pipelines. US billionaires line up to bankroll Republicans' election push. OpenAI weighs a funding round at a $1.2tn valuation before an IPO. Saudis pound Yemen as Houthis solidify gains in new theatre of Middle East war. Oil slips as Saudi Arabia offers more crude via Oman; diesel near record high. Bund yields close to 17-year highs on mixed energy prices, Fed in focus. Bessent to meet He Lifeng in New York ahead of Trump-Xi Summit.

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In currency markets. Against the USD, currency markets were mostly sidelined ahead of today’s Federal Reserve decision, with the greenback holding near recent highs as traders largely priced in a 25-basis-point rate increase. EUR and GBP remained subdued, while JPY and the commodity currencies were broadly range-bound as investors avoided taking fresh positions before the Fed’s updated projections and Chair Warsh’s guidance. With the rate move itself largely anticipated, the key FX focus is whether policymakers signal a broader tightening cycle or a more limited adjustment.

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In commodity markets. WTI -2.25% | Nat Gas +0.86% | Gold +1.27% | Silver +2.39% | Copper +1.13% | Palladium +1.72% | Coffee -0.74% | Cocoa -0.24% | Soybeans +0.61% | Wheat -0.14%

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CAD extends its losing streak to multi-week lows, with the loonie pushing above 1.39 as broad US dollar strength and expectations for a Fed rate hike weigh on the loonie. Despite elevated oil prices offering some support, the widening Canada-US two-year yield differential, softer domestic housing activity, and continued uncertainty surrounding US-Canada trade relations leave CAD vulnerable to further near-term weakness.

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EURCAD edges higher, with the currency pair approaching 1.6100 amid weakening oil prices and expectations for another ECB rate hike later this year. Continued uncertainty surrounding US-Canada trade relations is also weighing on CAD, leaving the near-term bias for EURCAD tilted modestly higher.

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EUR continues to stall below 1.1550 against the USD ahead of today’s Federal Reserve decision, with markets widely expecting a 25-basis-point rate hike. With a hike largely priced in, attention will focus on the Fed’s updated projections and Chair Warsh’s comments for guidance on the pace of further tightening, while expectations that the ECB could raise rates again later this year continue to provide some underlying support for the single currency.

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GBPEUR remains under pressure, slipping toward 1.1650 as UK inflation came in broadly in line with expectations and failed to strengthen the case for a Bank of England rate hike. With the BoE expected to leave rates unchanged tomorrow while the ECB is seen retaining a tightening bias, the relative interest-rate outlook continues to favour the euro and leaves GBPEUR vulnerable to further near-term weakness.

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GBP continues to slip against the USD as today’s UK inflation data offered little support, with headline CPI rising to 3.1% but matching expectations. Yesterday’s softer employment figures, including a 26,000 fall in payrolls and slower wage growth, reinforce expectations that the Bank of England will leave rates unchanged tomorrow, leaving GBP on the defensive ahead of today’s Fed decision.