The Morning Update

The USD eases, oil prices retreat, equity markets are up, and US yields are up as risk sentiment improves. The U.S. dollar edges lower, extending its recent decline as markets cautiously price in a potential diplomatic breakthrough in the Middle East. Despite the ongoing blockade of Iran’s ports and elevated geopolitical risks, safe-haven demand has softened as investors focus on renewed negotiations. The greenback remains under pressure near multi-week lows, with sentiment increasingly driven by headline risk rather than macro fundamentals. Global equities advance as optimism around renewed US-Iran talks and a potential extension of the ceasefire boosts risk sentiment. European and Asian markets move higher, with U.S. futures also edging up as easing oil prices help alleviate inflation concerns. While the relief rally gains traction, sustainability will depend on continued progress in negotiations and stabilization in energy markets. Elsewhere, oil prices weaken as easing geopolitical tensions and expectations of improved supply weigh on crude markets. Meanwhile, gold and Bitcoin rebound, supported by a softer U.S. dollar and improved investor sentiment. Focus today will be on the US PPI report, BoE Governor Bailey, ECB Lagarde, and a flurry of Fed speakers, all helping to provide direction to currency markets.

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News Headlines. China's Xi warns that the Iran conflict leaves the world 'beset for disarray'. China flexes trade power with soaring use of export controls. OpenAI investors question $852bn valuation as strategy shifts. Carney clinches majority government to push energy and trade ambitions. Singapore tightens monetary policy as energy shock hits Asia. Oil supply crunch intensifies as last Hormuz tankers reach refineries. US & Iran may resume war talks this week despite port blockade. Iran war upends IEA's oil market outlook as global supply and demand to contract in 2026. Spain & China pledge closer ties amid a threat to the world order.

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In currency markets. The Japanese yen remains under pressure amid concerns over a deteriorating trade balance and persistently high oil prices, which are weighing on the currency. Expectations for a near-term Bank of Japan rate hike have diminished as geopolitical uncertainty clouds the economic outlook. As a result, USD/JPY is approaching the key 160 level, a threshold that raises the risk of potential intervention from Japanese authorities.

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In commodity markets. Oil prices tumble 1.9%. Natural Gas prices weakened 0.75%. Gold & Copper prices gained 0.8%. Silver prices rallied 3%. Coffee prices strengthened 1%, while Soybean & Wheat prices are up 0.1%.

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CAD holds at three-week highs against the U.S. dollar, supported by easing geopolitical tensions and renewed optimism around US-Iran peace talks, which have weighed on the greenback. Additional support comes from domestic political stability following Prime Minister Carney's securing of a majority government, reinforcing investor confidence. However, gains remain limited as softer oil prices begin to weigh on the commodity-linked loonie, keeping upside momentum in check.''

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EURCAD trades flat in early sessions, with euro strength from ECB tightening expectations offset by a modest recovery in the Canadian dollar. Focus now turns to ECB President Lagarde’s comments, where any hawkish signals could reinforce medium-term upside in EUR/CAD.

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EUR firms, testing the 1.1800, extending their bullish run as the U.S. dollar remains under pressure amid optimism around US-Iran diplomacy. The euro continues to benefit from improved risk sentiment and expectations of ECB tightening, keeping the pair supported near recent highs. Focus now turns to the US PPI report and ECB President Lagarde’s comments, which are expected to provide further direction.

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GBPEUR trades flat in early sessions as markets adopt a cautious stance ahead of key central bank commentary. Expectations of a more balanced, potentially pause-oriented tone from BoE Governor Bailey are weighing on the pound, while the euro remains supported by a relatively hawkish ECB outlook. Focus now turns to remarks from both Bailey and ECB President Lagarde, which are expected to provide clearer direction for the cross.

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GBP holds firm near the 1.3550 level, extending its rally as improving risk sentiment and optimism around US-Iran negotiations weigh on the U.S. dollar. The move is supported by easing inflation concerns and policy divergence between a more hawkish BoE and an uncertain Fed outlook. Focus now turns to U.S. PPI data and Fed commentary for further direction.

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