The Morning Update

The USD moves higher; oil prices rally, equity markets trade lower, and US yields rose. The USD edges higher but remains near a four-month low., pressured by a sharp yen rally, while markets await key U.S. inflation data to gauge the likelihood of a Fed rate hike next week. Nothing of note on the economic data front today as we await PPI on Thursday and CPI on Friday. Bitcoin remains firm at the start of the day.

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News Headlines:  In response to Canada’s retaliatory tariffs, the U.S. banned a broad range of Canadian alcohol, motorcycles and dairy imports effective September 29, further escalating the trade dispute. Iran launched ballistic missiles at a U.S.-used base in Jordan and attacked 10 ships near the Strait of Hormuz after the U.S. destroyed five Iranian oil tankers, sharply escalating the six-month conflict. Oil surged above $100 a barrel as escalating Middle East attacks on tankers and oil facilities intensified concerns over already constrained global supplies. Trump told Putin that a swift end to the Ukraine war could pave the way for restored U.S.-Russia trade and economic ties, as diplomatic efforts continue despite renewed Russian attacks on Ukraine. Israel ordered the UK to close its East Jerusalem consulate within 30 days in retaliation for British sanctions on Israeli settlements. More than 1,750 UK flights were cancelled after an air traffic control system outage, leaving airlines scrambling to clear a major travel backlog.

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In currency markets: The Japanese yen strengthened toward 153 per dollar, near a seven-month high, supported by Bessent’s warning against shorting the currency and expectations of a BOJ rate hike next week. Markets await tomorrow’s US PPI and Friday’s US CPI.

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In commodity markets: Oil prices are up 2.4%. Natural gas is off 1.0%. Gold gained 0.91%. Silver rallied 0.79%. Copper is off 1.0%. Coffee rallied 0.68%. Soybean traded 0.10% lower while Wheat is up 0.33%.

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USD/CAD edged lower as Canadian-dollar strength slightly outpaced the U.S. dollar, with higher oil prices providing support to the loonie.

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EUR/CAD is trading higher, with the euro supported by expectations that the ECB will raise rates by 25 bps tomorrow, while higher oil prices are providing some support to the Canadian dollar and limiting the pair’s upside.

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EUR strengthened, supported by expectations of an ECB rate hike tomorrow as surging energy prices heighten inflation concerns.

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GBP/EUR remains near 1.1650, with sterling lacking momentum while expectations for another ECB rate hike this week continue to underpin the euro.

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GBP strengthened, supported by rising expectations for further BoE rate hikes as surging energy prices renewed UK inflation concerns.

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