The Morning Update

The USD strengthens, oil prices ease, equity markets are down, and US yields rise ahead of the key US inflation report. Investors are continuing to buy the U.S. dollar, taking it to a near four-month high as geopolitical tensions persist. Markets will be monitoring today's Federal Reserve’s preferred Core PCE inflation report and upcoming U.S. GDP data for signals on the future path of interest rates. Meanwhile, the Iran conflict has entered its second week, increasing demand for safe-haven assets like the dollar and raising concerns about higher oil prices and global inflation. Global equities extended their decline as oil prices remained above $100 a barrel, heightening fears of a global inflation surge as the Iran conflict reached the two-week mark. A global equity index is on track for a second consecutive week of losses after retreating from record highs hit before the conflict, with Europe’s Stoxx 600 falling and US futures stabilizing after the S&P 500 dropped to its lowest level since November. Meanwhile, Treasuries were little changed, though volatility in the bond market has climbed to a nine-month high as investors scale back expectations for Federal Reserve rate cuts. Elsewhere, Brent oil prices held steady above $100 a barrel as the ongoing Iran conflict raised concerns about global supply disruptions and inflationary pressures. Meanwhile, gold prices eased while Bitcoin climbed above $72,000, reflecting shifting investor sentiment across commodities and digital assets. Today sees a busy economic calendar, with the focus on the key US Core Personal Consumption Expenditures - Price Index, GDP, Durable Goods Orders, Michigan Consumer Sentiment Index, JOLTS Job Openings, and the CAD Unemployment report, which will help drive intraday currency market direction.

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In the news. US eases Russian oil sanctions as energy prices soar. European businesses warn Brussels over push to end reliance on US tech. Canada launches tens of billions in Arctic military investments. Gulf states have lost $15 bn in energy revenues since the start of the war. Gulf oil shock deepens crisis for Asia's petrochemicals industry. The US has burned through 'years' of munitions since the start of the Iran war. Oil is on track for weekly gains despite the US waiving its sanctions on Russian oil. One French soldier was killed, and six others were wounded after an Iraqi drone attack. The UK economy ground to a halt even before the Iran war energy shock.

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In currency markets. Against the U.S. dollar, the yen weakened to its lowest level since 2024, approaching levels at which authorities previously intervened to support the currency, while Scandinavian currencies, including the Norwegian krone and Swedish krona, also softened as geopolitical tensions and volatile energy markets weighed on regional risk sentiment. CNY weakened 0.4%, while Asian currencies eased 0.2%, on average, against the USD. Trading currencies come under renewed pressure, with PLN, NOK & CZK tumbling 0.7%, SEK, DKK, NZD & AUD weakening 0.6%, CHF & ZAR falling 0.4%, JPY & MXN easing 0.2%, and KWD is flat against the USD.

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In commodity markets. Oil & Gold prices ease 0.6%. Natural Gas prices rallied 1.2%. Silver prices tumbled 2.3%. Copper prices retreated 1.1%. Coffee prices weakened 1.6%. While Soybean prices fell 0.8% and Wheat prices firmed 0.25%.

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CAD weakened in early trading, hitting a seven-day low against the U.S. dollar as softer-than-expected trade data and broad gains in the greenback weighed on the currency. Canada’s trade deficit widened more than expected in January, reflecting weaker exports, while oil prices eased after their recent surge despite remaining elevated. Investors are now focusing on upcoming U.S. inflation and growth data, along with Canada’s jobs report, for further clues on the outlook for interest rates and economic momentum.

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EURCAD remained under pressure with the euro holding near nine-month lows against the Canadian dollar as higher oil prices continued to support the commodity-linked loonie. Investors are now focusing on Canada’s upcoming jobs report, which could provide further direction for the pair.

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‍EUR hovers near seven-month lows around 1.1450 as the U.S. dollar strengthened on renewed safe-haven demand amid escalating geopolitical tensions in the Middle East. The euro remains particularly sensitive to soaring oil prices because the eurozone is a major energy importer, with higher crude costs raising inflation risks and weighing on growth expectations. Investors are also watching the upcoming U.S. Core PCE inflation report and GDP data for further clues on the Federal Reserve’s policy outlook.

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GBPEUR slipped as the pound weakened following softer-than-expected UK economic data. UK GDP stagnated in January, reinforcing concerns about slowing growth, while hawkish comments from European Central Bank policymakers and expectations of potential rate hikes supported the euro.

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GBP extended losses toward 1.3250 as the pound weakened following softer-than-expected UK GDP and industrial production data for January. At the same time, the U.S. dollar gained support from safe-haven demand amid escalating tensions in the Middle East. Investors are now focusing on key U.S. inflation data, particularly the Federal Reserve’s preferred Core PCE report, along with GDP figures, for further direction on the dollar and the pair’s near-term outlook.