The Morning Update

The USD holds steady, oil prices firm, equity markets are up, and US yields ease as rate cut expectations strengthen. The dollar remains pinned near five-week lows as traders price in roughly 85% odds of a Fed rate cut next week, a view reinforced by yesterday’s softer-than-expected ADP employment data. Speculation that Kevin Hassett could become the next Fed Chair is adding further downward pressure, with markets bracing for a more dovish tilt. The decisive catalyst arrives Friday, when the Core PCE Price Index — the Fed’s preferred inflation gauge — will show whether expectations for imminent easing are warranted. Global equities are firming, with Asian and European markets setting a positive tone as expectations of an imminent Fed rate cut bolster hopes for a sustained year-end rally. Strength in sectors such as autos, industrials, and Japanese tech heavyweights is helping broaden market participation beyond the megacaps. Investors remain encouraged by signs of stabilizing inflation and the prospect of lower rates, which continue to support risk appetite across global indices. Elsewhere, oil prices are firming amid supply-risk concerns, while gold has slipped amid softer sentiment. Bitcoin continues to edge higher, recently pushing toward the $93,500 level on renewed risk appetite and rate-cut expectations. In focus today, the US Challenger Job Cuts, CAD Ivey PMI, US Initial Jobless Claims, US Factory Orders, and ECB's Cipollone & Lane Speeches will help provide direction to currency markets.

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In the news. Macron warns of 'disintegration' risk to world order in Xi meeting. Bond investors warned the US Treasury over picking Hassett as Fed Chair. Japanese 10-year bond yields rise to the highest level since 2007. The EU launches an antitrust probe into Meta over WhatsApp AI policy. Witkoff to meet Ukrainians after fruitless Putin talks. Canadian Food prices could increase in 2026, with meat leading the way, says Dalhousie researchers. Canadian stocks seen outperforming US stocks in 2026 on economy. BlackRock expects AI to continue dominating markets in 2026 despite risks. New capital rules from the Bank of England will support growth.

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In currency markets. The South African rand is strengthening as rising expectations for U.S. rate cuts and softer U.S. data boost demand for higher-yielding emerging-market currencies. The yen is also firming, supported by stronger Japanese bond auctions and renewed speculation that the Bank of Japan may move toward a rate hike. People's Bank of China-linked state banks purchased U.S. dollars this week in onshore FX markets to slow the recent appreciation of the Chinese yuan, which hit a 14-month high. CNY flat, while Asian currencies firmed 0.2% on average against the USD. Trade currencies are mixed, with CZK falling 0.35%, NOK & NZD down 0.1%, CHF, KWD, SEK, & PLN flat, MXN & AUD up 0.1%, ZAR strengthens 0.25%, and JPY rallies 0.35%.

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In commodity markets. Oil & Coffee prices gained by 0.45%. Natural Gas & Soybean prices firmed by 0.2%. Gold prices slip 0.1%. Copper prices tumbled by 1.2%, and Wheat prices eased by 0.25%.

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CAD eased in early trading, slipping slightly after recent gains amid a more cautious broader market sentiment. A modest pullback in commodity prices has also taken some support away from the currency, which had benefited from stronger oil and improving domestic productivity earlier in the week. Even so, narrowing yield differentials between the Bank of Canada and the Federal Reserve continue to provide a fundamental backdrop that limits significant CAD weakness. With the BoC expected to stay on hold and the Fed widely anticipated to cut rates, the policy outlook still favours a firmer Canadian dollar over the medium term.

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EURCAD continues to edge higher as the euro outperforms on strong euro zone momentum and sustained Fed rate-cut expectations, while the Canadian dollar loses traction amid softer sentiment and ongoing Canada–U.S. trade uncertainty. With the ECB steady and the BoC on hold, the broader policy backdrop further supports EUR/CAD resilience in the near term.

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EUR is holding near a seven-week high as weaker U.S. data and rising expectations of a Fed rate cut continue to weigh on the dollar, reinforcing support for EUR/USD. Optimism about improving eurozone business activity, alongside a broadly steady ECB policy outlook, has helped keep the currency up more than 12% this year. With markets now focused on upcoming U.S. jobless claims data, the euro’s near-term direction will hinge on whether the dollar extends its recent softness or finds temporary relief.

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GBPEUR is holding flat as Sterling’s support from Fed-driven USD weakness is offset by the euro’s resilience on improving euro zone data. With neither currency showing a clear advantage, upcoming comments from ECB speakers could help provide direction for the pair.

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GBP is edging higher, supported by firm expectations of a Fed rate cut next week that continue to weigh on the U.S. dollar. Sterling has also benefited from post-budget clarity in the UK, which has helped steady sentiment despite lingering expectations of a dovish Bank of England in the months ahead. With U.S. labour data softening and market risk appetite improving, GBP/USD remains biased to the upside in the near term.