The Morning Update

The USD is steady, oil prices are down, equity markets are up, and US yields are mixed amid hopes for a China deal and expectations for the Fed. The dollar index held steady as markets focused on the upcoming Federal Reserve meeting and U.S.-China trade talks. Investors expect a Fed rate cut and progress in trade negotiations between Presidents Trump and Xi to shape global currency movements. Global stocks rallied on optimism that the U.S. and China are nearing a trade deal, setting an upbeat tone ahead of a pivotal week featuring a Federal Reserve rate decision and major tech earnings. Investors are watching whether the Fed’s expected rate cut and results from giants like Microsoft, Alphabet, and Apple will sustain market momentum amid easing trade tensions. “The shift of attention to the negotiations with China is causing the markets to open higher, but only a positive outcome will be sustainable,” said Guillermo Hernandez Sampere, head of trading at asset manager MPPM. “This week could be crucial for the course of the rest of the year, with the greatest focus on the Federal Reserve’s wording regarding monetary policy.” Elsewhere, Oil and Gold prices continue under pressure, while Bitcoin rebounds above $115,000 as risk appetite improves. The focus this week will be on Wednesday's BoC, Japan and the Fed's interest rate decisions. Thursday's German and EU GDP report, German Inflation report and the US GDP report. Friday's EU Inflation report and the US Core PCE - Price Index will provide direction to the currency markets this week.

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In the news. Trump targets China trade deal as he arrives in Tokyo on his Asian tour. Rare earth stocks tumble as the US expects China to delay export controls. Argentina's midterm election hands a decisive win to Milei's libertarian overhaul. The US government debt burden is on track to overtake Italy's, the IMF figures show. SAAB is ready to open a plant in Ukraine for Gripen fighter jets. Stock futures climb ahead of Big Tech earnings and a widely expected Fed rate cut. Novartis to buy US biotech firm Avidity Biosciences for about $12 billion in Cash. Melissa strengthens to a Category 5 hurricane as it nears Jamaica. Canada pushes back on provinces spoiling for a fight with Trump. Trump sets 10% tariff hike on Canada after ads air during World Series.

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In currency markets. The U.S. dollar climbed to a two-week high against the yen as investors awaited key trade talks and central bank meetings. Markets expect the Federal Reserve to cut interest rates this week, while the Bank of Japan is likely to keep its policy rate unchanged. Optimism over U.S.-China trade progress and upcoming meetings between Presidents Trump and Xi boosted risk sentiment and supported higher-yielding currencies, such as the Australian dollar. CNY gains 0.2%, while Asian currencies are down 0.1% on average against the USD. Trading currencies are mixed, with NOK & CHF easing 0.2%, SEK & JPY down 0.1%, DKK & CZK flat, KWD, MXN, ZAR and PLN firmed 0.2%, NZD strengthened 0.45%, and AUD rallied 0.75% against the USD.

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In commodity markets. Oil prices down 0.9%. Natural Gas Prices eased 0.5%. Gold and Silver prices tumbled 1.8%. Coffee prices weakened by 1.25%. Copper prices firmed by 1%. Soybean prices strengthened by 1.65%, and Wheat prices rallied by 2.25%.

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CAD holds steady against the U.S. dollar in early trading but remains vulnerable to further weakness after trade negotiations between the two countries broke down, and Trump added a further 10% tariff on Canada, weighing on sentiment. Despite a modest weekly gain last week supported by stronger inflation data, the loonie’s outlook remains fragile. Markets widely expect the Bank of Canada to cut its key interest rate by 25 basis points to 2.25% this week amid weak growth and trade uncertainty. At the same time, the Federal Reserve is expected to lower its benchmark rate by a quarter point to 3.75%–4.00% on Wednesday. Investors will focus on Fed Chair Jerome Powell’s comments for signals about future easing and the pace of balance-sheet reduction. With slowing economic momentum and policy divergence between the BoC and the Fed, the Canadian dollar remains vulnerable to retest towards 1.4100 against the U.S dollar.

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EURCAD is trading steadily, holding above 1.6250 as markets await the Bank of Canada’s expected rate cut. Softer Canadian growth prospects and easing oil prices are limiting support for the loonie, while steady Eurozone data is keeping the euro firm. Overall, analysts see a mildly bullish near-term outlook for EUR/CAD, with potential gains if the BoC delivers a dovish signal on Wednesday.

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EUR firmed in early trading as investors awaited a busy week featuring key central bank meetings and trade developments. Markets expect the Federal Reserve to cut rates by 25 basis points on Wednesday, with focus shifting to Chair Jerome Powell’s guidance on future easing. In contrast, the European Central Bank is likely to keep policy unchanged, emphasizing a data-driven stance as inflation nears the target and growth stabilizes. The U.S.–China trade talks are also weighing on sentiment, with signs of progress boosting risk appetite and slightly tempering demand for the U.S. dollar. Overall, narrowing policy divergence between the Fed and ECB, combined with easing trade tensions, is lending modest support to the euro.

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GBPEUR is slightly higher in early trading, supported by steady market sentiment and mild pressure on the euro. While the ECB’s decision to hold rates and maintain a cautious tone offered limited support to the euro, expectations of subdued UK growth continue to cap sterling’s gains. Overall, GBP/EUR remains range-bound as traders await fresh economic data and central bank signals for direction.

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GBP tests 1.3350 in early European trading as the USD weakened amid expectations of a Federal Reserve rate cut and optimism over U.S.–China trade negotiations, boosting risk-on sentiment. Positive UK retail sales and improved PMI data helped the pound snap a six-day losing streak, signalling resilience in consumer spending and business activity despite ongoing labour-market softness. The U.S. dollar index edged lower near 98.80 as traders priced in a 25-basis-point rate cut to 3.75%–4.00% at Wednesday’s Fed meeting, marking a second consecutive reduction. While easing U.S. inflation reinforced dovish Fed bets, hopes for a trade deal between Washington and Beijing provided some offset to broader dollar weakness. Overall, GBP/USD remains supported by firmer UK data and risk-on sentiment but faces resistance near 1.3360 amid lingering budget and growth concerns in the UK.