The Morning Update

The USD firmed, oil prices rallied, equity markets are down, and US yields eased as risk-on sentiment fades. The U.S. dollar was on track for a modest weekly gain as traders balanced the Federal Reserve’s hawkish tone against signs of a slowing economy. The currency initially extended its winning streak after Fed Chair Jerome Powell warned against rushing into further rate cuts; however, soft labour data and falling Treasury yields limited its upside. Ongoing uncertainty from the record U.S. government shutdown and weaker Chinese trade figures kept investors cautious, with markets now split over the likelihood of a December rate cut. Global equities drifted lower as a brief rebound in dip-buying lost momentum, leaving markets cautious at the close of a volatile week. The tech-heavy “Magnificent Seven” drove the pressure after a sharp slide in their gains, while U.S. futures for the S&P 500 and Nasdaq 100 stalled. With the longest U.S. government shutdown in history floating over the market and few data points ahead, investors remained tentative, waiting for triggers to reignite sentiment. Elsewhere, oil and gold both strengthened, supported by tighter supply conditions and renewed safe-haven demand amid global uncertainty. Bitcoin, however, eased as investors trimmed exposure to risk assets, shifting preference toward traditional commodities and lower-volatility hedges. Today's focus will be on the CAD unemployment report, the US Michigan Consumer Sentiment Index, and a flurry of speakers from the Fed, the BoE and the ECB to help drive intraday currency direction.

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In the news. China's exports suffer their worst downturn since February. Elon Musk's $1 trillion Tesla pay plan wins shareholder approval. German general says Russia could launch a limited attack on NATO at any time. China moves to ease rare earth export curbs, but it is unlikely to meet Trump's hopes. Japan to step up LNG purchase for emergency reserve from January, industry ministry sources say. EU set to water down landmark AI act after Big Tech pressure. EU demands the UK pay into the budget as part of a relationship reset. The three biggest US airlines are to cancel hundreds of flights due to the shutdown. Ontario deficit shrinks by $1 billion as trade war chips away at economic outlook.

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In currency markets. The New Zealand dollar weakened, pressured by the likelihood of further rate cuts from the Reserve Bank of New Zealand and subdued global demand. The South African rand strengthened modestly on improved commodity prices and investor sentiment toward the country's reform efforts. Meanwhile, the Japanese yen weakened as global risk appetite improved and investors shifted out of safe-haven assets. CNY is flat, while Asian currencies firmed 0.1% on average against the USD. Trading currencies are mixed, with the NZD weakening by 0.4%, the JPY easing by 0.2%, and the CHF, CZK, and NOK down by 0.1%. KWD, AUD, DKK, and PLN are flat, SEK is up 0.1%, MXN is firming 0.2%, and ZAR is gaining 0.25% against the USD.

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In commodity markets. Oil prices strengthened by 1.25%. Natural Gas, Soybean and Coffee prices are up 0.25%. Gold prices firmed by 0.65%. Silver prices rallied 1.5%. Copper prices were up 0.45%, while Wheat prices fell 0.45%.

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CAD steadied in early Friday trading, hovering around 1.4110 per U.S. dollar after signs of weakness in U.S. labour data weighed on the greenback. The loonie found stability following a five-day losing streak, though lingering softness in domestic data—highlighted by the Ivey PMI’s drop to 52.4—kept upside limited. Markets are now turning their attention to today’s Canadian employment report, which is expected to show modest job losses and an unchanged unemployment rate, as investors gauge how labour trends might influence the Bank of Canada’s next policy move.

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EURCAD edged higher in early European trading, supported by a softer Canadian dollar as oil prices remained weak and attention turned toward Canadian inflation data. The loonie’s weakness is reinforced by expectations that the Bank of Canada may resume rate cuts. At the same time, the euro continues to hold ground thanks to a relatively stable outlook from the European Central Bank. With the cross trading below the mid-1.6300s, traders are watching both commodity trends and policy cues for the next directional trigger.

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EUR held relatively flat in early trading as EUR/USD struggled to stay above 1.1550 amid a rebound in the U.S. dollar driven by risk-off sentiment and tech sector weakness. Investors are closely watching remarks today from European Central Bank (ECB) Governing Council member Boris Vujčić, who recently said policy is “in a good place” and flagged market risks. Meanwhile, U.S. dollar support may strengthen further, depending on the tone from multiple Federal Reserve speakers expected later today, keeping the upside for the euro capped until clearer signals emerge.

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GBPEUR weakened, dropping amid intensifying concerns over the UK’s fiscal outlook and muted growth expectations. Investors are cautious ahead of the upcoming UK budget and monetary policy signals, while the euro benefits from relatively firmer data in the euro zone.

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GBP remained under pressure, hovering near the 1.3100 level against the U.S. dollar after the Bank of England held its policy rate at 4% and offered a dovish outlook amid fiscal headwinds. The currency was further weighed by comments from Chancellor Rachel Reeves, who signalled in a pre-Budget speech that sweeping tax rises are on the table to plug a significant fiscal shortfall, raising concerns about future growth and investor confidence. With the dollar also gaining support on signs of tighter monetary policy in the U.S., GBP/USD appears capped unless fresh positive surprises emerge from the UK’s economic or fiscal outlook.