The Morning Update

The USD eased, oil prices tumbled, equity markets rallied, and US yields were mixed amid a tentative truce in the Iran/Israel conflict. The USD softened after President Trump announced a ceasefire between Israel and Iran, ending the 12-day conflict. President Trump's remarks sparked a risk rally, which has led to a 3% drop in oil prices and a rally in global equities and US futures. "If the ceasefire holds - and there is no guarantee that it will - it will undoubtedly be greeted positively by markets as it will at the margin reduce uncertainty," said Daniel Murray, CEO of EFG Asset Management in Switzerland. Lower oil prices will reduce inflationary pressure and "also help support consumption trends and hence growth overall." Elsewhere, oil prices tumbled as concerns about supply and shipping disruptions eased. Bitcoin rallies over 2% to $105.4, silver prices slip, and gold prices tumble on improving risk sentiment. Today's focus will be on the CAD CPI report, US Housing Price Index, Fed Chair Powell testifies, BoE's Governor Bailey Speech, and speeches from ECB Lane, and a flurry of Fed speakers will help drive currency markets.

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In other news. Trump promises end to '12-day war' between Israel and Iran. Germany to boost defence spending at a faster rate than France and the UK. Canada and the EU signed a defence pact to procure arms jointly. Australia regulator calls to restrict YouTube access for under-16s. Gold falls to two-week low as Israel-Iran ceasefire erodes safe-haven demand. Fearing war with Russia, Finland hardens NATO's northern frontier. Hundreds of firefighters battle wildfires on Greece's Chios island. Fed Chair Powell headed for a congressional grilling over the Fed's rate hold. Tanker rates soar to the highest since 2023 after the US bombed Iran.

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In currency markets. Risk-sensitive JPY and NZD led gains, followed by ZAR and AUD, as markets cautiously monitor the Iran/Israel cease-fire. CNY firmed 0.1%, while Asian currencies, on average, gained 0.25% against the USD. Trading currencies rebound, with NOK flat, DKK & KWD up 0.1%, MXN, CHF & CZK firmed 0.3%. SEK strengthened by 0.5%, and JPY, NZD and ZAR rallied 0.65% against the USD.

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In commodity markets. Oil prices tumbled by 3%. Natural Gas and Gold prices weakened by 1.7%. Silver prices eased by 0.45%. Copper prices strengthened by 1.2%. Wheat prices fell 1% and Soybean prices are down 0.2%.

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CAD underperforms its peers, holding above 1.3700 amid tumbling oil prices following the US announcement of a truce between Iran and Israel. We anticipate investors will remain cautious regarding claims of Iran/Israel ceasefire violations and their impact on oil prices. Today, we will see the Canadian Consumer Price Index, which is expected to hold at 1.7% y/y for May. However, other sources predict a larger increase to 2.5%, with core inflation (ex food & energy) also potentially rising. The month-over-month increase could also be higher than in April. Also in focus will be Fed Chair Powell's testimony in front of the US Congress.

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EURCAD holds steady, focusing on the CAD CPI and EU ECB Lane's comments to help provide intraday direction.

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EUR stalls at 1.1600 as risk sentiment stalls amid Iran-Israel ceasefire uncertainty. The euro consolidates at weekly highs as risk-on sentiment returns, but the euro stalled on Israel's claims of Iran's ceasefire breach. We expect Investors to remain cautious and focused on Iran/Israel ceasefire updates before extending the risk-on rally. Last Friday, Fed Waller said that the Fed could cut the policy rates as early as July, so markets will monitor Fed Chair Powell's comments in front of Congress for any supporting comments for a July rate cut.

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GBPEUR rallies as focus shifts to the BoE Governor Bailey's comments amid hawkish BoE Greene's remarks today.

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GBP extends gains through 1.3610 as focus shifts to BoE Bailey and Fed Powell comments. The pound rallies from 1.3350 to 1.3600 as risk mood rebounds on the Iran/Israel truce news. Dovish comments from Fed Waller and Bowman, both supporting a 25% cut in interest rates in July, with the BoE having adopted a more cautious tone. BoE's Greene remarks cautioned that a gradual approach to policy easing continues to be warranted, saying, "Noisy data means that it will take longer for me to take comfort from recent disinflationary trends." Intraday comments from Fed Chair Powell and BoE Bailey will be the primary driver for the pound.