The Morning Update

The USD remains under pressure, oil prices ease, equity markets are steady, and U.S. yields are mixed as investors prepare for the Fed’s decision. The dollar has fallen to two-month lows ahead of tomorrow’s interest rate announcement, while the euro looks set to extend gains beyond yearly highs, with investors eyeing 1.2000 as the next target. Global equities are steady near record levels, with Asian shares poised for their best winning streak in nearly five years. Technology stocks continue to drive momentum, with the Nasdaq 100 on track for a 10th straight day of gains ahead of an anticipated new cycle of Fed rate cuts. “In the session ahead, we navigate U.S. retail sales, and that poses a degree of risk to markets,” wrote Chris Weston, head of research at Pepperstone Group. “However, with the Fed meeting looming large in the following session, it will likely take an outsized surprise in retail sales to really move the dial on risk.” Elsewhere, gold hit a record high on Tuesday as a softer dollar and expectations of Fed rate cuts, both now and into 2026, fueled gains, though traders anticipate a correction before prices breach $4,000. Oil prices slipped, and Bitcoin advanced toward $115,500 as markets await the Fed’s decision. Today’s focus will also be on Canada’s inflation report and U.S. retail sales, both key drivers for currency markets.

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In the news. Trump fails to oust Lisa Cook from the Fed ahead of rates decision. Russian hackers target Polish hospitals and city water supply. South Korea resists US pressure to finalize 'Japan style' trade deal. Trump administration orders Delta and Aeromexico to unwind joint venture by Jan 1st. The US targets China's grip on global ports in sweeping maritime mission. UK jobs market slow again, offering some inflation relief for the BoE. Economists see Canada deficit surging to C$70 billion on Trade war. Canadian Tire and Tim Hortons merge loyalty programs. UN inquiry finds top Israeli officials incited genocide in Gaza. Qatar and US nearing defence deal after Israel's attack in Doha, Rubio says.

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In currency markets. The yen, Swiss franc, and euro have gained on safe-haven demand and broad dollar weakness, reflecting caution in global markets. Traders remain wary ahead of the Fed’s rate decision, which could quickly shift momentum across major currencies. CNY is flat, while Asian currencies on average gained by 0.15% on average against the USD. Trading currencies advance, with NZD, MXN, ZAR and NOK flat, KWD & AUD up 0.1%. JPY and SEK gaining 0.25%, DKK, CZK and PLN advancing 0.35% and CHF strengthening 0.45% against the USD.

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In commodity markets. Oil price fell 0.15%. Natural Gas, Wheat and Soybean prices firmed by 0.35%. Gold and Silver prices strengthened by 0.45%, and Copper prices fell by 0.25%.

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CAD edged higher in early trading after the loonie tested a 10-day high on Monday, supported by stronger-than-expected factory sales that rose 2.5% in July. Additional support came from firm wholesale trade and continued housing market momentum, helping to lift sentiment. Investors are now focused on today’s Canadian CPI, expected to show inflation easing modestly, which will be pivotal for the Bank of Canada’s policy decision on Wednesday. Meanwhile, the TSX hit another record high, underscoring confidence in Canadian markets even as traders weigh the likelihood of further BoC easing.

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EUR/CAD is steady ahead of today’s Canadian CPI, with markets expecting softer inflation that would reinforce bets on a BoC rate cut tomorrow. A weaker print would likely drive the pair higher as the loonie comes under renewed pressure with yearly high of 1.6276 in focus.

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EUR strengthened in early trading, emerging as the strongest of its G10 peers as investors reacted to the latest ZEW surveys. German and Eurozone sentiment measures both pointed to cautious optimism, offering support to the single currency despite signs of softer momentum compared to previous months. Attention now turns to the Federal Reserve, with markets widely expecting a rate cut and looking for signals on the pace of future easing. Against this backdrop, investors are increasingly targeting 1.2000 on EUR/USD as the next key milestone.

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GBPEUR edged lower as sterling weakened on softer UK employment data, with payrolls down 8,000 in August and wage growth slowing. The figures highlight labour market fragility, leaving the pound under pressure against the euro.

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GBP is holding firm as softer UK employment data—payrolls down 8,000 and wage growth easing—relieves inflation pressure and raises the possibility that the Bank of England may ease sooner than expected. Despite the weaker UK numbers, sterling is steady as the dollar faces heavier pressure from expectations the Federal Reserve will cut rates at tomorrow’s meeting. Markets are fully pricing a 25bp cut, and guidance on the pace of future easing will be key for direction. Ahead of that, U.S. retail sales due today could add volatility, with weaker figures likely to deepen dollar losses.

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