The Morning Update

The USD advances, oil prices rally, equity markets fall, and US yields are mixed as the Iran/US war intensifies. The US Dollar strengthens as escalating tensions in the Middle East drive a flight to safety, pressuring global equities and risk assets. Safe-haven demand is further reinforced by elevated oil prices, which are intensifying inflation concerns. This backdrop is prompting markets to scale back expectations for Federal Reserve rate cuts, supporting a firmer USD outlook. As a result, the greenback is gaining broadly, underpinned by both geopolitical risk and a more resilient policy trajectory. Global equity markets are broadly lower, with declines across Asia, Europe and US futures as escalating Middle East tensions and Trump’s Iran deadline weigh on sentiment. Rising oil prices are fuelling inflation concerns, prompting expectations that central banks may delay easing or shift back toward tighter policy. As a result, investors are turning more cautious, reducing risk exposure amid heightened geopolitical uncertainty. Elsewhere, oil prices advance amid escalating tensions in the Middle East, with supply risks continuing to support crude prices above key levels. Meanwhile, gold tumbles under pressure from a stronger US Dollar and rising yields, while Bitcoin remains sidelined in a phase of consolidation. Amid a light economic calendar, investors will be focused on Trump's ultimatum deadline to reopen the Strait of Hormuz.

‍

In the news. Stocks tumble as Trump and Iran step up threats. Flights were disrupted after a crash at New York's LaGuardia airport, which killed two Air Canada pilots. Berkshire Hathaway to take $1.8bn stake in Tokio Marine. Danish PM rides theTrump Greenland row into election resurgence. France's far right notches up mixed results in local elections. Cuba hit by second nationwide power outage in a week. The IEA warns that the current oil crisis is worse than the 1970s. Venezuela opposition leader says US pressure has forced domestic reform. Investors game out Iran risk as clock ticks on Trump's deadline.

‍

In currency markets. Against the US Dollar, the Norwegian Krone tumbles amid risk-off sentiment, despite elevated oil prices. The Australian Dollar also weakens, reflecting its sensitivity to global growth concerns and cautious market positioning. Overall, USD strength continues to dominate amid geopolitical uncertainty and shifting rate expectations. CNY & Asian currencies on average eased 0.35% against the USD. Trading currencies continue under pressure, with NOK tumbling 2%, SEK weakening 1.6%, ZAR & AUD retreating 1.2%, PLN & CZK falling 1%, MNX, DKK & CHF dropping 0.75%, and JPY easing 0.25% against the USD.

‍

In commodity markets. Oil & Natural Gas prices strengthened 1%. Gold prices weakened 6.7%. Silver prices tumbled 7.7%. Copper prices retreated 1.2%. Coffee prices firmed by 0.45%. Soybean prices gained by 0.7%, and Wheat prices rallied by 1.55%.

‍

CAD eases in early trading but continues to outperform its major peers. The Loonie remains supported by elevated oil prices amid ongoing tensions in the Middle East. Markets are also pricing a more hawkish Bank of Canada outlook, with expectations for rate hikes into 2026. However, gains are tempered against a firmer US Dollar, keeping CAD slightly pressured in USD terms.

‍

EURCAD comes under renewed selling pressure, dropping below 1.5800 as escalating Middle East tensions drive a rally in oil prices and support the loonie. Elevated crude prices, alongside a more hawkish stance from the Bank of Canada, continue to underpin CAD strength. While the Euro is supported by expectations of potential ECB rate hikes, this is being offset by the BoC’s comparatively firmer outlook. As a result, the cross remains biased to the downside in the near term.

‍

EUR drops toward 1.1500 as the US Dollar firms amid escalating Middle East tensions, prompting a flight to safety. The greenback is further supported by a more resilient, hawkish Fed outlook, adding pressure on the Euro. While the single currency had previously found support from aggressive ECB rate-hike expectations, this support is now being challenged by fragile risk sentiment and already stretched positioning. As a result, downside risks remain elevated for EUR/USD in the near term.

‍

GBPEUR eases in early trading as Sterling’s resilience fades amid shifting Bank of England expectations. Markets are questioning the sustainability of the BoE's aggressive tightening given weak growth and fiscal pressures. Meanwhile, the Euro is supported by rising ECB rate hike expectations, keeping the bias tilted toward EUR strength.

‍

GBP weakens, testing fresh lows near the 1.3250 level as downside pressure intensifies amid a stronger US Dollar. The greenback is supported by safe-haven demand as escalating Middle East tensions push oil prices above $100 per barrel. Rising energy costs are fuelling stagflation concerns in the UK, weighing on Sterling alongside weaker domestic data. Meanwhile, the Bank of England’s warning of an inflationary shock and softer growth outlook reinforces the bearish near-term bias.

‍