The Morning Update

The USD strengthens, oil prices are up, equity markets rally, and US yields are mixed as the EU reaches a trade deal. The USD strengthens against its G10 peers in early trading after the US and the EU agreed on a framework trade pact. On Sunday, President Trump and EU Commission President von der Leyen said the deal provided for an import tariff of 15% on EU goods, half the threatened 30% the US had threatened from August 1st. US futures and EU equities rally after the EU reached a trade deal with the US, easing fears of an escalating trade war. Investors will be focused on this week's interest rate decisions by the Fed, BoC, and BOJ, as well as earnings from mega-cap companies, which will help shape the outlook for global markets. Trade deals are coming in "less worse than expected." Chi Lo, at BNP Paribas Asset Management, said on Bloomberg TV. "That change in expectation and sentiment pushed up the markets over the past few weeks, and going forward, we need to see the fundamentals come back to play." Elsewhere, oil prices rallied, while Bitcoin prices remained flat, and gold and Silver prices held steady in early trading. In focus this week, Monday sees a light economic calendar. Tuesday, Spanish GDP, US Housing Price Index, Jolts Jobs Opening, and Australia CPI. Wednesday, German Retail Sales & GDP, EU GDP, US ADP Employment Change, US GDP, BoC Interest Rate Decision, and the US Fed Interest Rate Decision. Thursday, BoJ Interest Rate decision, EU CPI, and the US Core PCE -Price Index. Friday, EU Inflation Report, US Average Hourly Earnings, US NFP's, CAD Manufacturing PMI, and the US Manufacturing PMI will help drive currency market direction this week.

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In the news. The EU & US reach a tariff agreement to avert a trade war. Russia runs low on Soviet-era arms as North Korea fills the gap. Aid cuts are driving migrants to Europe, warns UN refugee chief. Thai and Cambodian leaders hold ceasefire talks in Malaysia. Trump and Starmer to meet in Scotland with trade and Gaza on the agenda. The EU urges Ukraine to uphold independent anti-corruption bodies, and Zelensky signals swift action. Israel announces daily pauses in Gaza fighting as aid airdrops begin. Alibaba to launch AI-Powered glasses, creating a Chinese rival to Meta. Canada warned not to 'take just any deal' as Trump tariff deadline nears.

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In currency markets. The USD index strengthens, while the EUR weakens after the EU and the US secure a trade deal, providing investors with cautious relief. The safe-haven JPY and CHF both weaken in early trading as risk-on sentiment returns to the markets. The CNY slipped 0.1% and Asian currencies, on average, eased 0.3% against the USD. Trading currencies come under pressure against the USD, with CZK & PLN tumbling 1%, CHF & DKK weakening 0.75%, ZAR, AUD, NZD, NOK, SEK and JPY falling 0.5%, and MXN easing 0.3% against the USD.

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In commodity markets. Oil prices rallied 0.95%. Natural Gas prices tumbled 1.8%. Gold, Silver and Copper prices are flat. Wheat and Soybean prices weakened by 0.6%.

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CAD continues to weaken under increasing selling pressure as investor optimism for a Canadian-US trade deal wanes ahead of the August 1st deadline. US President Trump said that the US and Canada may not reach a negotiated trade deal, suggesting that his administration could set a tariff rate unilaterally. Investors will also be focused on Wednesday's BoC interest rate decision, with markets expecting the central bank to keep interest rates on hold at 2.75% due to a recent rise in inflation and a fall in unemployment. Markets are still pricing in at least two interest rate cuts in H2/25, but this is likely to be linked with the outcome of a Canadian/US trade deal. Intraday sees a light economic calendar, so investors will be focused on US/Canada trade updates to help provide direction to the loonie.

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EURCAD dips after the announcement of the EU/US trade deal.

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EUR tumbles towards 1.1650 on the 'buy the rumour, sell the fact' following the EU/US trade deal. EU Commission President Ursula von der Leyen described the framework of the US-EU trade deal as the best the bloc could negotiate. The trade deal will see the US impose a 15% tariff on most EU goods and see the EU spend $600 billion on US investments while opening up some important parts of the EU markets to the US. Domestically, ECB policymaker Peter Kazimir said on Monday that there is "no significant change that would force my hand to act in September." After the US trade deal reduces market uncertainty, it remains unclear how the trade deal will impact eurozone inflation levels.

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GBPEUR strengthens on the weakness of the euro following the US-EU trade deal.

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GBP is sidelined as the UK attempts to improve its trade terms with the US today in Scotland. Prime Minister Starmer flew to meet President Trump in Scotland, seeking to renegotiate the UK's trade agreement with the US, with the aim of removing tariffs on whiskey and adjusting the terms for UK steel and aluminum. With the absence of any key UK economic releases this week, investors will focus on the Fed's interest rate decision and US key inflation and employment data to provide direction for the pound this week.