The Morning Update

The USD weakens, oil prices ease, equity markets are mixed, and US yields rise amid Fed and ongoing geopolitical concerns. The US dollar drops the most in three weeks, as markets react to rising concerns over the Federal Reserve’s independence, after reports that the Trump administration threatened Chair Jerome Powell with a criminal indictment intensified fears of political pressure on monetary policy. Investors worry that such actions could undermine the Fed’s credibility, raise uncertainty around the future policy path, and ultimately force a more accommodative stance than fundamentals alone would justify, weighing on the dollar while boosting demand for gold and other havens. These worries are unfolding against a backdrop of heightened geopolitical risk, with tensions spanning Iran, Venezuela and renewed strategic rhetoric around Greenland, reinforcing a cautious market mood. Asian equity markets are trading higher, with major regional indexes showing gains in early trade as investors react positively. In contrast, European markets and US stock futures are generally weaker, with the S&P 500 and other US futures slipping amid renewed macro and political uncertainty. This divergence reflects pockets of strength in Asia while caution prevails in Western markets ahead of key data and central bank developments. Elsewhere, oil prices are falling as oversupply concerns weigh on energy markets, while gold continues to rally on strong safe-haven demand amid political and macro uncertainty. Bitcoin remains under pressure, consolidating but holding above the $90,000 level as risk appetite stays fragile. In focus this week, Monday sees a light economic calendar. Tuesday, the US inflation report. Wednesday, US PPI Index, US Retail Sales and the Fed's Beige Book. Thursday, UK GDP, US Initial Jobless Claims, and the Philadelphia Fed Manufacturing Survey. Friday, the German Inflation report, and the US Industrial Production report will help provide direction to currency markets this week.

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In the news. Fed Chair Powell says he's under criminal investigation, won't bow to Trump intimidation. Banks, including Citi & JPMorgan, slide after Trump calls for a credit card interest rate limit. India inflation accelerates to 1.33% in December, driven by higher food prices. Japan's PM Takaichi weighs calling a snap general election. Trump says US 'looking' at military operations in Iran. Nordic diplomats reject Trump's claim of Chinese and Russian ships around Greenland. Iran says it's quelled protests after hundreds were reported killed. Carney heads to Beijing as Trump's America First agenda forces Canada into trade rethink.

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In currency markets. Against the US dollar, the Swiss franc has strengthened as investors seek safety amid rising political and policy uncertainty. The Japanese yen has traded broadly flat, with domestic political uncertainty limiting conviction despite some underlying haven support. Meanwhile, the Chinese yuan has edged firmer, supported by steady policy management from Beijing and a softer dollar backdrop. CNY & Asian currencies, on average, firmed 0.1% against the USD. Trading currencies rebound against the USD, with JPY flat, SEK, NOK & CZK up 0.2%, MXN, CHF, AUD, DKK, PLN & ZAR gaining 0.4%, and KWD & NZD strengthening 0.65% against the USD.

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In commodity markets. Oil prices weakened by 0.75%. Natural Gas prices strengthened 2.8%. Gold & Copper prices gained 2.2%. Silver prices rallied 6.1%. Coffee prices slipped 0.15%. Soybean prices firmed 0.4%, and Wheat prices rallied by 1.3%.

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CAD firmed in early trading after posting its biggest weekly drop in 11 months, finding some support from broader US dollar weakness. That USD softness has been driven in part by rising concerns over central bank independence after President Trump confirmed a criminal probe into Federal Reserve Chair Jerome Powell, unsettling markets and weighing on the greenback. With Canada’s economic calendar light and domestic data still pointing to labour market softness, near-term CAD direction is likely to hinge on US Federal Reserve developments and evolving geopolitical headlines.

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EURCAD has firmed in early trading, supported by broad US dollar weakness and relative resilience in the euro as concerns over US monetary policy credibility dominate markets. The Canadian dollar remains fragile after last week’s sharp decline, with lingering labour-market softness and uncertainty around energy markets limiting its recovery, allowing EUR/CAD to edge higher at the start of the session.

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EUR has pushed higher toward the 1.1700 area amid broad US dollar weakness, driven by renewed concerns about Federal Reserve independence following reports of a criminal investigation into Chair Jerome Powell. Improved Eurozone investor sentiment has offered limited additional support to the euro, with the move largely USD-led as markets reassess the Fed’s credibility and policy outlook. Attention now turns to upcoming US CPI data and further Fed commentary for confirmation on the rate path, alongside ongoing geopolitical tensions that continue to underpin volatility.

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GBPEUR has firmed modestly in early trading, holding near recent highs as the euro struggles to extend gains despite an improvement in Eurozone investor confidence. Ongoing geopolitical tensions and uncertainty around the regional outlook continue to cap euro strength, while attention shifts to upcoming UK employment data for clues on the Bank of England’s next policy steps.

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GBP strengthened further, pushing above 1.3450 as the US dollar weakened on renewed concerns over the Federal Reserve’s independence following developments involving Chair Jerome Powell. Sterling outperformed despite ongoing domestic headwinds, as the softer dollar dominated near-term price action. Looking ahead, UK GDP data due later this week will be a key test of the currency, with evidence of slowing growth likely to revive expectations of the Bank of England easing and cap further gains.