The Morning Update

The USD firms, oil prices rise, equity markets and US yields remain mixed, with investor focus shifting to the Fed's revamp and the Ukraine truce. The USD index firmed slightly in early trading but remains on track for a weekly decline as Trump's temporary choice for an interim Fed governor boosted expectations for a dovish pick to replace Chair Powell when his term ends. Fed Governor Waller, who voted for a rate cut in the Fed's last meeting, is emerging as the top candidate to be the next chair, Bloomberg News said on Thursday. Global equities are mixed at the end of a busy week, during which markets saw the rollout of US tariffs, the announcement of a US-Russia meeting on Ukraine, and a flurry of corporate earnings. "Second-quarter earnings confirm corporate resilience continues. Overall, margins have been steady while firms' commentary indicates that corporates have been largely adept at managing the impact from tariffs so far," said Emmanuel Cau, strategist at Barclays Plc. Elsewhere, Gold futures in New York rallied after the US put tariffs on bullion bars, threatening to upend trade flows from Switzerland and other key refining countries. Oil prices firm in early trading, but remain on track for their largest weekly losses since June, while Bitcoin slipped to $116,500, and silver prices firmed to $38.59. In focus today is the CAD unemployment rate, while the US economic docket is quiet with no high-tier economic releases to provide direction to markets.

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In the news. The US hits one-kilo gold bars with tariffs, a blow to Switzerland's refining hub. The Israeli security cabinet approves a new plan to reoccupy all of Gaza. Intel chief hits out at 'misinformation' after Trump calls on him to resign. China Cosco seeks at least 20% as Beijing reshapes $23bn Panama ports deal. Trump to nominate Stephen Miran to the Federal Reserve Board. Spain shuns the US F-35 jets as tensions with Washington escalate. Canada eyes an Arctic ocean port to ship gas and commodities to Europe. A simulated Chinese blockade of Taiwan reveals Singapore as a lifeline. Air Canada flight attendants' union to resume negotiations as strike threat looms.

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In currency markets. The best-performing currencies this week were BRL, up 2.2%, ZAR, up 1.8%, and MXN and GBP, both up 1.3% against the USD, while the USD Index dropped 0.9% on the week. We expect currency markets to remain steady today, with investors stepping to the sidelines due to the lack of key US data releases and caution ahead of the US inflation report on Tuesday. CNY is flat, while Asian currencies on average eased by 0.2% against the USD. Trading currencies come under pressure, with JPY tumbling 0.6%, PLN, CZK, DKK, NOK & SEK weakening 0.3%, NZD & CHF easing 0.2%, KWD down 0.1% and AUD is flat against the USD.

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In commodity markets. Oil & Natural Gas prices firmed 0.6%. Gold prices rallied 1.1%. Silver and Copper prices strengthened by 0.85%, while Wheat and Soybean prices are flat.

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CAD holds near two-week highs heading into today's key Canadian jobs report. Markets are widely expecting the Canadian unemployment rate to rise to 7% in July, up from 6.9% in June. The net change in employment is expected to fall to 13.5k, down from 83.1k in June. If the unemployment data comes in as expected, markets are largely expecting only a 30% chance that the Bank of Canada will cut interest rates at its next meeting in September. With continuing headwinds from the US tariffs and ongoing oil price weakness, the loonie is expected to put pressure on it, capping it beyond 1.3650.

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EURCAD weakens through 1.6000 on euro weakness, while the loonie finds support from strengthening commodity prices.

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EUR slips towards 1.1600 amid investor caution ahead of next week's key US inflation report. The euro eases amid a firm USD after three days of gains as focus shifts to next week's US inflation report and anticipated US-Russia meeting on Ukraine. Investors are expecting the euro to be supported on dips, with expectations growing to a 93% chance of a Fed rate cut in September, while the ECB is expected to keep its rates on hold until the first quarter of 2026. Intraday, with the absence of any high-tier US data releases, we anticipate the euro will remain in a tight trading range.

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GBPEUR is sitting at monthly highs, rallying as markets expect the Bank of England will keep future interest rate cuts on hold in 2025.

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GBP extend gains towards 1.3450 following BoE Governor Bailey's comments. The pound strengthens to multi-week highs following the Bank of England's interest rate cut to 4%, its lowest level since 2023. Governor Bailey added that "interest rates are still on a downward path, but any future cuts will need to be made gradually and carefully." Markets pared back expectations for further rate cuts in 2025, after the bank raised its inflation forecast for September to 4% from 3.7%.