The USD trades higher; oil prices move lower, equity markets trade higher, and US yields dropped. The U.S. dollar moves higher ahead of today’s CPI, after hotter PPI data pushed the probability of a 25-bp Fed rate hike next week to roughly 71%. The backdrop remains supportive for the dollar: August payrolls increased 162,000, unemployment held at 4.1%, and yesterday’s inflation data reinforced concerns that higher energy costs are feeding into broader inflation. The 10-year U.S. Treasury yield climbed toward 4.97%, it’s highest level since October 2023, as a disappointing Treasury buyback and hotter producer inflation reinforced expectations for a Fed rate hike next week. Bitcoin trades higher ahead of US economic data.
News Headlines: Prime Minister Carney said the latest U.S. trade measures will have a modest overall impact on Canada, despite significant effects on some sectors, and signaled that Canada does not plan to retaliate. Canada and Ukraine signed a 100-year partnership, with Canada pledging to significantly expand domestic drone production and send one-third of the drones produced to Ukraine. Yemen’s Houthis reached the strategic Bab el-Mandeb Strait, raising fears of further disruption to a second major global shipping route and adding upside risk to oil prices.
In currency markets: Currency markets remain cautious ahead of today’s U.S. CPI, with the USD supported by higher yields and increased expectations for a Fed rate hike next week. Sterling strengthened following better-than-expected UK GDP, while the euro remains steady following yesterday’s ECB hike and the yen is supported by expectations for further BoJ tightening.
In commodity markets: Oil prices are off 3.1% (up 8.3% for the week). Natural gas is off 1.0%. Gold gained 0.65%. Silver trades higher 0.75%. Copper is flat. Coffee is down 0.32%. Soybeans trade 1.38% lower while wheat is down 1.27%
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USD/CAD moves higher as weak Canadian employment data contrasted with stronger U.S. payrolls, widening expectations for the U.S.-Canada interest-rate differential. The combination of potential BoC dovishness and increased expectations for a Fed hike remains supportive of USD/CAD.
EUR/CAD remains generally steady, with the euro consolidating following yesterday’s ECB rate hike while weakness in the Canadian economy is largely offset by support from elevated oil prices.
EUR The euro weakened as the USD remained firm ahead of today’s U.S. CPI report. Despite the decline, expectations for further ECB tightening remain strong, with markets pricing in three additional rate hikes by March.
GBP/EUR trades slightly higher after stronger-than-expected UK GDP boosted sterling, while expectations for further ECB tightening continue to provide underlying support for the euro.
GBP The British pounds holds after stronger-than-expected UK GDP growth reinforced expectations for further BoE rate hikes. Elevated energy prices continue to pose inflation risks, with markets now pricing in four BoE rate increases by the end of 2027.
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