The Morning Update

The USD firms, oil prices strengthen, equity markets rally, and US yields rise as risk sentiment improves. The USD rose after President Trump stated he would announce a major trade deal with the UK" later in the day. The euro continues to face pressure after markets observed the single currency's biggest decline in two weeks on Wednesday. US futures are higher after the S&P 500 posted its first positive day in three following the Fed's decision and Trump's comments on the expected UK trade deal announcement. The UK FTSE 250 index rallied to a two-month high on the expected US/s rally deal announcement. President Trump also commented on social media that the US and Chinese officials will meet this weekend to discuss trade, with the comments increasing expectations that China/US tariffs could ease, averting lasting damage to global economic growth. Elsewhere, oil prices strengthened as the EIA showed that US crude inventories continued to slide, while Bitcoin strengthened as cryptocurrency-exposed stocks rallied. In focus today is BoE's Governor Bailey, BoC's Macklem and President Trump's speeches, and US initial jobless claims will help drive intraday direction to currency markets.

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In the news. Trump to announce trade deal with the UK. Fed warns of rising economic risks as it holds rates steady. EU capitals want retaliation against Trump delayed to avoid NATO clash. Global warming reaches 1.58°c over 12 months. China's Xi attacks US 'hegemony' ahead of Putin summit. Denmark summons US ambassador over Greenland espionage report. Toyota warns profits set to fall 21% as Trump tariffs take their toll. India and Pakistan escalate conflict with drones and missiles. Ukraine considers shift from dollar to euro amid geopolitical realignments. Carney to hold meeting with provincial leaders in Saskatoon in June.

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In currency markets. The USD holds on to gains as markets expect a UK trade deal announcement today. Investors are optimistic that the US and China will ease tariffs when they meet this weekend, adding further support to the USD. SD. INR remains stable against the USD despite rising tensions between India and Pakistan. CNY and Asian currencies eased by 0.2% on average against the USD. Trading currencies are mixed, with JPY tumbling 0.65%, CHF & PLN weakened by 0.25%, AUD, SEK and NZD down 0.15%. MXN & NOK up 0.1%, and ZAR gains 0.3% against the USD.

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In commodity markets. Oil and Natural Gas prices rallied by 1.4%. Gold & Copper prices tumbled by 1.45%. Silver prices eased by 0.5%. Wheat prices strengthened by 0.75%, and Soybean prices gained by 0.5%.

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CAD weakens in early trading amid a strengthening USD, with the greenback supported by today's expected UK/US trade announcement. Domestically, investors will focus on BOC Governor Tiff Macklem's delivery of his Financial Stability Report 2025. We expect the Governor to maintain a dovish stance amid the ongoing tariff uncertainty and growing economic uncertainty narrative. The initial jobless claims from the US will also be monitored closely to help provide intraday direction to the loonie.

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EURCAD continues to gain ground as the loonie remains on the back foot with the lack of US/Canada trade progress following Tuesday's meeting and expectations of at least 1% easing from the BoC in 2025.

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EUR continues under pressure, slipping below 1.1300 as USD demand returns. The euro eased for a second day as fresh US buying returns on the expected UK/US trade deal, and hopes of a US/China trade deal over the weekend. The euro is also facing pressure from the likely increasing interest rate divergence between the Fed and the ECB, with the Fed keeping interest rates on hold, while the ECB is expected to cut rates by at least three times in 2025. Intraday, the US initial jobless claims will help guide the euro today.

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GBPEUR holds steady in anticipation of President Trump announcing a UK/US trade deal, offsetting the impact of the BoE's 25bps rate cut.

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GBP eased against the USD following the BoE announcement, ahead of the widely anticipated US/UK trade deal. The Bank of England cut rates by 0.25% to 4.25%, which was fully priced into markets. BoE's Bailey said the bank needs to keep to its gradual and careful approach, but markets were surprised when policymakers were split about the percentage of the rate cuts. Investors will now switch their focus to today's US/UK trade announcement to help drive direction for the pound today.

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