The Morning Update

The USD strengthens, oil prices rally, equity markets are down, and US yields rise, amid growing risk-off sentiment. The USD rallied on safe-haven demand driven by Fed policy uncertainty, ongoing geopolitical tensions, and anticipation ahead of key US economic reports, which could shape expectations for Fed rates. Global equity markets declined as concerns over government finances and persistent inflation intensified, despite equities remaining near record highs. The record-breaking rally now faces a critical test with upcoming jobs data, inflation reports, the Fed’s rate decision, and added pressure from tariff disputes and President Trump’s attacks on the central bank. "I think it's clear that the pressure on yields, particularly in France and in the UK, is clearly weighing on the stock market this morning." Said Andrea Tueni, at Saxo Banque France. "There's a lot of caution around moving closer to key US inflation and labour market data. That warrants to prudence moving forward." Elsewhere, Gold races to an all-time high above $3,500, oil prices rally on rising geopolitical risks stemming from the war, and Bitcoin strengthens by 1% to $110,330 in early trading. In focus this week: Tuesday, US Manufacturing ISM and ECB Nagel speech. Wednesday, ECB President Lagarde's speech, EU PPI, BoE's Breeden Speech, US Factor Orders, Jolts Jobs opening, and the Fed's Beige Book. Thursday, CHF CPI, EU Retail Sales, US ADP Employment Change, US Initial Jobless Claims, US Services PMI, and Fed's Williams & Goolsbee speeches. Friday, German Factory Orders, GBP Retail Sales, EU GDP, CAD Net Change in Employment, US Average Hourly Earnings, US Nonfarm Payrolls, and CAD Ivey PMI will help drive currency markets this week.

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In the news. The Eurozone inflation rises to hotter-than-expected 2.1% in August. Von der Leyen's plane was hit by suspected Russian GPS interference. Xi outlines China's ambition to reshape world order in showpiece summit. Modi hails India's energy ties with Russia despite US anger. Trump calls India-US trade relationship 'a totally one-sided disaster' after Modi visits China. Nestle Investors face more turbulence after another CEO was ousted. Key Starbucks supplier in Switzerland tastes bitter harvest of Trump tariffs. ECB's Schnabel calls for steady rates as economy holds up in the face of tariffs. Gold races to an all-time high above $3,500 on prospects of a US rate cut. Loss of Fed independence would push up borrowing costs, set off turmoil, EBC's Schnabel says.

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In currency markets. The USD Index rallies 0.7%, while the GBP looks set for its worst day since June, and gilts are selling off as the spotlight falls on the UK's finances. CNY slips 0.1%, while Asian currencies on average fell 0.35% against the USD. Trading currencies come under pressure, with JPY & CZK tumbling 1%, NZD, SEK & AUD weakening 0.8%. CHF, MXN, DKK, ZAR & PLN falling 0.65%, and NOK & KWD down 0.1% against the USD.

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In commodity markets. Oil prices rallied 3%. Natural Gas prices down by 0.4%. Gold prices firmed by 0.9%. Silver prices rallied by 1.75%. Copper prices eased by 0.3%. Wheat prices tumbled 1.8% and Soybean prices weakened by 0.8%.

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CAD prices eased in early trading, but are outperforming their G10 peers, finding support with the rallying oil prices. The Canadian dollar’s moves this week will hinge on the Ivey PMI, Canadian jobs data, and U.S. payrolls. Strong domestic numbers could reinforce expectations that the Bank of Canada will keep rates steady, while weak employment paired with solid U.S. payrolls would strengthen the case for Fed cuts later this year, yet still support the USD against a softer CAD.

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EURCAD weakens from an early high of 1.6110 to fall below 1.6050 as the loonie finds an underlying support from the rallying oil prices.

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EUR is struggling near 1.1650 after Eurozone inflation edged up to 2.1% in August, a move that failed to generate support for the euro as the ECB maintains a steady policy stance. Attention now shifts to key U.S. releases—including ISM surveys, the Beige Book, and Friday’s non-farm payrolls—which will shape expectations for a widely anticipated Fed rate cut later this month. Political pressure on the Fed has further fueled uncertainty, leaving EUR/USD vulnerable to swings driven by U.S. data and concerns over central bank credibility.

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GBPEUR is expected to remain under pressure, looking vulnerable to breach 1.1500, as gilt yields surge on UK fiscal concerns and investors remain cautious on sterling.

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GBP is under heavy pressure after its steepest fall since June, driven by surging gilt yields and fears over strained UK public finances. With the autumn budget looming, investors expect tax hikes and tighter fiscal discipline, while upcoming UK data will influence expectations for Bank of England policy. Unless fiscal credibility improves or the Fed becomes more dovish, sterling is likely to remain weak, despite potential short-term rebounds.