The Morning Update

The USD tumbled, oil prices firmed, equity markets and US yields are mixed as Trump delayed EU tariffs. The USD dropped to its lowest level in almost two years after Trump's u-turn on EU tariffs increased market uncertainty, highlighting the President's volatile policymaking. European equities and US futures climbed after the US extended the deadline for 50% tariffs on the EU to July 9th from June 1st. "The stock market seems to dance to Trump's tune: first a threat, then a pullback, quickly followed by a rebound as speculative investors anticipate a concession from the US President," said Jochen Stanzl, CMO at CMC Markets. "This morning's confirmation of such expectations reinforces the so-called Trump Pattern, which is increasingly seen as a successful strategy for risk-tolerant investors." Investors will focus on releasing the Fed's preferred inflation measure on Friday, the US PCE price index excluding food & energy, for guidance on possible easing by the Fed. Elsewhere, oil prices gained on the US extension of the EU tariffs, Bitcoin prices firmed, and gold prices weakened. In focus this week, Monday sees a light economic calendar with the US Memorial Day holiday. Tuesday, the EU Economic Sentiment Indicator, and US Durable Goods Orders. Wednesday, AUD RBNZ Interest Rate Decision, and the FOMC Minutes. Thursday, the US GDP report, and the BoE Governor Bailey speech. Friday, German Retail Sales and CPI, CAD GDP, and the US Core PCE report, will help drive currency markets this week.

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In the news. Trump says he's eyeing Russia sanctions, calls Putin 'Crazy." Trump delays imposing 50% tariffs on the EU until July 9th. Iran says it could survive if US nuclear talks end without a deal. France and Vietnam sign Airbus, defence deals as Macron visits Hanoi. Xiaomi takes aim at Tesla's bestselling car in China with its longer-range YU7. Xi mulls new made-in-China plan despite US call to rebalance. India and Canada hold top-level talks to mend frayed ties. King Charles and Queen Camilla begin royal visit to Canada. PM Carney tells MPs to brace for 'very, very busy' few weeks as Parliament reopens.

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In currency markets. The euro rallied to one-month highs after Trump's U-turn on EU tariffs, while the USD slumped to near two-year lows. We expect current markets to stall within current levels with the US absent due to the Memorial Day holiday. CNY firmed 0.1%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with CHF, NOK, JPY and ZAR down 0.2%, MXN & SEK flat, DKK gained 0.2%, AUD strengthened 0.3%, and NZD rallied 0.65% against the USD.

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In commodity markets. Oil prices firmed 0.6%. Natural Gas prices tumbled 1.35%. Gold prices weakened by 1%. Silver prices eased 0.2%. Copper prices up 0.25%. While Wheat and Soybean prices are flat.

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CAD opens up flat, holding near eight-month highs against the USD as the loonie finds support from strengthening oil prices and the increasing prospect that the Bank of Canada will keep rates on hold in June. Economists say the Canadian recession has already begun as the trade war continues. Bloomberg surveyed economists, who say output will shrink 1% on an annualized basis in the second quarter and 0.1% in the third quarter, indicating a technical recession. Economists now say unemployment will rise to 7.2% in the second half of 2025 before easing in 2026. According to Bloomberg's World Interest Rate Probability, there is just a 30% probability that the Bank of Canada will cut interest rates in June. June. This week, the focus will be on Friday's key Canadian GDP for insights into the BoC's future policy decision.

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EURCAD extends gains as the delay in US tariffs against the EU helped boost the single currency.

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EUR strengthens towards 1.1400 as the US extends EU tariff relief to July. The euro drew support from ongoing U.S. weakness after the U.S. extension of the 50% tariff deadline on the EU to July 9th. President Trump said on Friday that their discussions with the EU were going nowhere and he was setting a "straight 50% tariff" on imports from the EU. On Sunday, Trump announced that he agreed to extend the tariff deadline on EU imports until July 9th following a conversation with the European Commissioner, President Ursula von der Leyen. We expect the euro to remain capped at 1.1400 as markets steady with today's US holiday.

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GBPEUR edges through 1.1900 as the pound continues to benefit from its agreed US and EU trade deals.

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GBP steadies near three-year highs as the USD comes under renewed selling pressure. Despite the UK and US markets being closed for national holidays, the pound extends gains on the back of the weakening USD due to improving risk sentiment following the pause in EU tariffs. We expect the USD to remain under pressure following comments from US Senator Ron Johnson to CNN that he thinks they have enough votes to stop Trump's tax bill until he gets serious about spending reduction and reducing the deficit. There are no key UK economic data releases this week, so investors will be focused on Friday's key PCE report to guide the Fed's next steps.

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