The Morning Update

The USD firmed, oil prices gained, equity markets are mixed, and US yields rose as Sino/US tariff talks stalled. The USD strengthens in early trading but is poised for its fifth monthly decline as investors brace for further US tariffs and debt uncertainty while awaiting today’s critical US inflation report. Asian equities and US futures dipped after US Treasury Secretary Scott Bessent stated on Thursday that trade talks with China were "a bit stalled." Additionally, a federal appeals court granted Trump a temporary reprieve from a ruling that threatened to nullify the bulk of his global tariffs. "No matter what happens, markets realize that we are facing a long period of uncertainty," said Win Thin, global head of markets strategy at Brown Brothers Harriman & Co. "Allowing tariffs to remain in place raises risks of stagflation and is both USD and equity negative." Elsewhere, oil prices have gained in early trading, but are poised for a small weekly loss ahead of the OPEC+ supply decision. Bitcoin dropped 1% to $104.8k, while silver and gold also came under selling pressure in European markets. Today sees a flurry of key economic data releases, with the German Inflation report, CAD GDP, and the Michigan Consumer Sentiment Index, with investors primarily focusing on the Fed's preferred inflation report, the US Core Personal Consumption Expenditures - price index, to guide currency markets today.

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In the news: Trump's tariffs will remain in effect after the appeals court grants a stay. Wall Street fears that a foreign tax in the budget bill may reduce the allure of US assets. US-China talks 'a bit stalled' and need Trump and Xi to weigh in, Treasury Secretary Bessent says. Trump tells Powell Fed is making a 'mistake' by not cutting rates. Bank of England governor urges UK government to see closer trade ties with the EU. US tourism operators offer exclusive deals for Canadians to convince them to return. Sask. Premier declares provincial state of emergency. First Nations chief warns of 'fierce resistance' to Premier Ford's mining bill.

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In currency markets. The USD hold onto gains heading into the German and US inflation reports, while the G20 currencies come under fresh selling pressure after the US court grants a stay on current US global tariffs. CNY slips by 0.15%, while Asian currencies on average weaken by 0.3% against the USD. Trading currencies come under renewed pressure, with NOK tumbling 0.65%. SEK, DKK, and CZK weakened by 0.4%, NZD & AUD eased by 0.35%, CHF fell by 0.2%, JPY is flat, and MXN firmed by 0.1% against the USD.

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In commodity markets. Oil, Natural Gas and Wheat prices strengthened by 0.65%. Gold prices weakened by 0.7%. Silver prices fell by 0.4%. Copper prices firmed by 0.4% and Soybean prices slipped by 0.2%.

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CAD holds steady above 1.3800, outperforming its G10 peers. The loonie finds support from improving oil prices and caution ahead of today's CAD GDP and US inflation report. Domestically, the TSX ends down from Wednesday's record high closing as mixed bank earnings weighed on financials and after the boost from the US court ruling on tariffs that proved short-lived. This morning's focus will be on the first quarter GDP report, which could guide expectations for next week's Bank of Canada interest rate decision. Economists are forecasting the CAD GDP annualized Q1 to ease to 1.7%, down from 2.6% in the previous quarter.

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EURCAD weakens following the US appeals court decision to give Trump a stay on the current tariffs, which has a greater impact on the EU.

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EUR gives back Thursday's gains amid tariff U-turn and caution ahead of the US Core PCE report. The euro comes under fresh selling pressure as risk-off sentiment returns as markets digest the court ruling on Trump's tariffs and caution ahead of the German and US inflation reports. Economists expect the German inflation levels to remain static at 2.1%, while the US Core PCE m/m to rise higher to 0.1% vs flat previously. A print outside of German or US inflation could spark an increase in volatility for the single currency.

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GBPEUR strengthened following the appeals court's stay on US tariffs, which had a greater impact on the EU as the UK had already completed its trade deal with the US.

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GBP holds steady below 1.3500 heading into the US PCE inflation report. The pounds slipped below 1.3500 amid a firming USD heading into today's crucial US Core PCE Price Index report, which could help guide the Fed, which is expected to keep rates on hold in June, but could impact its decision for a July rate cut. Domestically, on Thursday, the Bank of England Governor Bailey said that the uncertain outlook demands a careful approach to future rate cuts. The governor also commented on the USD as a reserve currency, saying, "We may see some rebalancing of activity (away from the dollar), but I don't think we're anywhere near that and I don't think we should want to be anywhere near that frankly." Intraday, the US inflation report will be the primary driver for the pound today.