The Morning Update

The USD firms, oil prices slip, equity markets are up, and US yields are mixed, with global equities eyeing all-time highs. The USD is steady on Friday but remains on track for a third consecutive weekly decline as the Fed’s less hawkish stance continues to weigh on the currency. Investors have ramped up expectations for rate cuts next year, diverging from policymakers’ projections and keeping the dollar under broad selling pressure. Uncertainty over the 2026 policy path, lingering data distortions from the government shutdown, and political scrutiny of Fed leadership heading into the U.S. midterm-election year are adding to the cautious tone surrounding the USD. Global equities are rallying, with European and Asian indices pushing toward record highs as investors respond positively to expectations that the Fed’s easing cycle will continue. However, US futures lag, held back by renewed weakness in technology shares following softer guidance from major AI-linked names. The divergence highlights a broadening of market leadership away from megacap tech as investors increasingly rotate into other sectors and geographies. European and Asian benchmarks continue to firm, supported by expectations that the Fed’s easing cycle remains intact and by growing demand for alternative real assets such as gold and emerging-market equities. Elsewhere, oil prices have slipped as demand concerns keep benchmarks on track for weekly losses, while gold hits a seven-week high on safe-haven demand and silver extends its push into fresh all-time highs. Bitcoin has rebounded as well, retesting the $92,000 level amid a modest improvement in risk appetite. Today sees a light economic calendar, so investors will be focused on a flurry of US Fed speakers to provide intraday direction to currency markets.

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‍In the news. Russia sues Euroclear over frozen assets. India's inflation rises to 0.71% in November as the decline in food and fuel prices loses steam. The UK economy contracted by 0.1% in October. Trump pushes for 'free economic zone' in Donbas, says Zelensky. Thailand to hold early elections after the PM dissolves parliament. Canada lawmaker swaps parties to Carney's Liberals, now on the cusp of a majority. Canada Q3 household debt-to-income ratio rises to 174.8%. Canada posts a C$153 million trade surplus in September. China's last 'too-big-to-fail' housing giant loses state support. General Atlantic, Canada's top pension, is set to acquire Permira's boat group.

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In currency markets. Currency markets are under pressure against the USD, with the Japanese yen weakening further amid policy divergence and fragile risk sentiment. The Norwegian krone is also softer, weighed down by weak oil-linked flows and a cautious market backdrop. CNY is flat, while Asian currencies slip 0.15% on average against the USD. Trading currencies come under pressure, with NOK & SEK weakening 0.55%. JPY & CZK falling 0.3%, KWD, CHF, MXN, DKK & PLN down 0.15%, AUD, NZD & ZAR are flat against the USD.

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In commodity markets. Oil prices slipped 0.3%. Natural Gas Prices down 0.2%. Gold prices strengthened 1.4%. Silver & Coffee prices up 0.25%. Soybean prices weakening 0.75%, and Wheat prices dropping 0.5%.

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CAD edges higher, testing a nearly three-month high as broad U.S. dollar weakness and an unexpected September trade surplus boosted sentiment. Canada recorded a C$153 million surplus, its first since January 2025, reversing seven months of deficits and sharply outperforming expectations for a C$4.5 billion deficit. The surplus was driven by a 44% jump in Canada’s trade surplus with the U.S., along with a 6.3% rebound in total exports, led by strong gains in metals, aircraft, and transportation equipment. Economists said the figures indicate Canada’s trade flows are stabilizing despite earlier tariff shocks, with diversification beyond the U.S. also continuing. Bond yields edged lower, and the stronger-than-expected trade data, paired with a steady Bank of Canada policy stance, supported the loonie even as oil prices slipped.

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EURCAD is softer as CAD outperforms on Canada’s surprise C$153 million September trade surplus and strong export rebound, while euro momentum fades with stretched technicals and limited support from German HICP data despite a steady ECB tone. With EUR cooling and CAD supported by resilient trade data and a steady Bank of Canada backdrop, investors are now focused on Monday’s Canadian inflation report and Tuesday’s German and Eurozone PMI releases for fresh direction.

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EUR is consolidating above 1.1700 after retreating from a two-month high, as a modest rebound in the US Dollar caps gains despite underlying support from widening policy divergence between the Fed and the ECB. The Fed’s 25 bps rate cut and expectations of further easing—driven in part by anticipation that incoming leadership may favour lower borrowing costs—continue to pressure the USD. At the same time, the ECB’s steadier stance supports the euro. German HICP data confirmed that annual inflation accelerated in November even as monthly prices declined, indicating persistent underlying price pressures in Europe. With several Fed officials scheduled to speak later today, markets remain cautious, though technical indicators suggest EUR/USD bullish momentum is slowing after its recent strong rally.

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GBPEUR is flat as mixed UK data—October GDP contracting 0.1% and softer manufacturing output—offsets steady eurozone inflation readings, with neither side generating a clear directional catalyst amid subdued trading conditions. With euro momentum steady but unspectacular and the market increasingly focused on next week’s Bank of England interest rate decision, where weakening UK growth and easing inflation raise the risk of a rate cut, the cross is likely to remain range-bound until fresh policy signals emerge.

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GBP is steady above 1.3350 as mixed UK data—October’s 0.1% GDP contraction and softer manufacturing output—fails to shift sentiment, with the pair holding gains after breaking key technical resistance near 1.3280. With the Bank of England meeting next week and markets pricing in a potential rate cut amid weakening growth, easing inflation, and a cooling labour market, the broader GBP outlook stays soft, leaving the pair sensitive to Fed commentary and incoming UK data for fresh direction.