The Morning Update

The USD firms, oil prices weaken, equity markets are up, and US yields are mixed on Fed rate-cut bets and strong earnings. The USD index edges off Friday's lows despite expectations that the Fed could cut rates by 25 bps by September, following Friday's weaker-than-expected US jobs data. Global equities extended their rebound, supported by robust corporate earnings and growing expectations of a Fed rate cut. Goldman Sachs expects the Federal Reserve to deliver three consecutive 25-basis-point rate cuts starting in September, with a 50-basis-point move possible if the next jobs report shows a further rise in unemployment. Money markets are now pricing in a 92% chance of the Fed cutting rates in its next meeting in September, up from 63% a week earlier. Elsewhere, oil prices ease on OPEC+ output hikes, while Bitcoin remains flat, and gold hovers near two-week highs on rising bets for a Fed rate cut. In focus this week, Tuesday, the US ISM Services PMI. Wednesday, EU Retail Sales. Thursday, BoE Interest Rate Decision, US Initial Jobless Claims, CAD Ivey PMI. Friday, CAD Unemployment Rate, US UoM 1 & 5 year Consumer Inflation Expectations.

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In the news. Trump to Raise Tariffs on India Over Russian Oil Purchases. South Africa reels from Trump tariffs as neighbours cut softer deals. TSMC Discovers Potential Leak of Advanced Chipmaking Technology. Hong Kong reels from the heaviest rainfall in August since 1884. The UK is to start returning some migrants to France within days under a new deal. Japan clinches landmark deal $6.5 billion warship deal with Australia to counter China. PM Carney and President Trump are expected to talk in the coming days, as Canada is hit with the tariffs. Canadian armed forces airdrop aid to Palestinians in Gaza.

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In currency markets. The pound held steady against the USD ahead of the BoE's interest rate decision on Thursday. JPY & CHF weaken amid rising concerns due to ongoing US tariff concerns and the impact on their domestic economies. CNY and Asian currencies ease by 0.1% on average against the USD. Trading currencies come under selling pressure, with ZAR & JPY tumbling 0.6%, CHF, PLN & CZK weakening 0.45%, NZD, DKK and SEK falling 0.35%, MXN and AUD easing 0.2%, and NOK down 0.1% against the USD.

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In commodity markets. Oil prices tumble 1.25%. Natural Gas prices rallied 1.8%. Gold, Copper and Wheat prices eased by 0.3%, and Soybean prices firmed by 0.2%.

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CAD opens at 1.3800, slightly down from Friday's highs, with markets focused on the US-Canadian ongoing trade talks and the possible Carney-Trump call later this week. Heightened uncertainty over the Fed policy outlook, with expectations growing for a possible 75-basis-point rate cut in H2/2025, which is expected to cap the USD upside towards 1.3900. This week's focus will be on the Canadian Ivey PMI and the key Canadian unemployment report, which will help guide the BoC's next steps.

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EURCAD slips on mixed EU data, while investors ignore weakening oil prices.

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EUR eases for a second trading session, but finds support above 1.1500 ahead of the US ISM PMI report. The euro finds support ahead of 1.1500 with increasing expectations of a Fed rate cut in September after a weaker-than-expected US NFP report on Friday. Domestically, German Composite and Services PMI beat expectations, while the EU, France and Italy missed expectations. On a positive note, the EU PPI y/y came in higher than expectations at 0.6% vs 0.3% previously. Intraday, investors will be focused on the US ISM Services PMI is expected at 51.5 vs 50.8 in June, and the result will be a primary driver for direction today.

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GBPEUR firmed on the back of a weaker euro as investors are sidelined with the pound ahead of the BoE interest rate decision on Thursday.

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GBP steadies below 1.3300 ahead of the US key PMI report. The pound is the best-performing G10 currency against the USD, with investors cautious ahead of the Bank of England's interest rate decision on Thursday. The Bank of England is widely expected to cut its key interest rate to 4% from 4.25% on Thursday and signal a potential second easing in Q4/2025, despite CPI rising close to double the central bank's 2% target in June. Intraday, the focus will be on the US PMI report to provide direction.

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