The Morning Update

The USD rebounds, oil prices rally, equity markets are up, and US yields are mixed, with investor focus split between geopolitical developments and interest rate expectations. The U.S. dollar index has rebounded modestly but remains near its lowest level since early October, down about 9.5% this year and on track for its steepest annual fall since 2017. Traders are awaiting U.S. inflation data later today for clearer signals on the Federal Reserve’s next policy move after soft labour data clouded the outlook. Central bank meetings this week, including the ECB and the BoE, and a likely rate hike from the Bank of Japan, are also shaping near-term dollar sentiment. Global equities advanced as rising oil prices boosted energy stocks, with European markets leading gains after the U.S. announced an oil blockade on Venezuela. The STOXX 600 climbed as major oil companies rallied, while U.S. equity futures also moved higher following recent volatility driven by mixed economic data. Investors remain focused on geopolitical developments and interest rate expectations as they assess the outlook for global growth and corporate earnings. Elsewhere, oil prices rebounded above $60 a barrel as geopolitical tensions around Venezuela raised supply concerns, while gold and silver advanced on renewed demand for hard assets. Bitcoin weakened below $87,000, underperforming as investors reduced risk exposure despite strength in commodities. The economic calendar is light, so focus will be on Fed speakers ahead of Thursday's key US Inflation report, as well as the BoE & ECB Interest Rate decisions.

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In the news. Trump orders 'blockage' of sanctioned oil tankers leaving or entering Venezuela. Oil jumps 2% as Trump's Venezuela blockade strokes uncertainty. UK inflation unexpectedly tumbles, firming Bank of England rate cut bets. Germany set to approve Euro 50 billion in military purchases. Japan bids farewell to pandas as row with China deepens. India's central bank governor signals rates to stay low for 'long period'. Canada unveils new rules to lower oil and gas methane emissions. Canada plans to open consulates in Greenland and Alaska to strengthen its Arctic presence. Warner Bros to rebuff $108bn Paramount hostile offer.

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In currency markets. The yen remains weak as investors weigh policy divergence and fading safe-haven demand. The Indian rupee has strengthened modestly, helped by central bank support and improved risk sentiment. The South African rand is trading flat as gains from firm commodity prices are offset by caution ahead of local economic data. CNY is flat, while Asian currencies slip 0.2% on average against the USD. Trading currencies come under pressure, with JPY & CZK weakening 0.5%, SEK, NOK, PLN & DKK falling 0.35%, CHF, NZD and AUD easing 0.2%, KWD down 0.1%, and ZAR & MXN flat against the USD.

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In commodity markets. Oil prices strengthened by 2.2%. Natural Gas Prices gained 1.7%. Gold prices firmed by 3%. Silver prices rallied 4%. Copper prices jumped 1%. Coffee prices rose 0.6%. Soybean prices are flat, and Wheat prices are up 0.2%.

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CAD weakens in early trading despite rallying commodity prices, after recently extending gains to a near three-month high on signs the U.S. labour market is cooling. While softer U.S. jobs data has reinforced expectations of policy divergence between the Federal Reserve and the Bank of Canada, near-term moves remain cautious. Focus now shifts to Thursday’s key U.S. inflation report and Friday’s Canadian retail sales for fresh direction.

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EURCAD is trading flat, with limited movement, as a lack of major economic data today keeps investors on the sidelines. Softness in both the euro and the Canadian dollar against the U.S. dollar has helped keep the cross range-bound. Focus remains firmly on the ECB’s rate decision for clearer directional cues.

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EUR slides toward 1.1700 as the U.S. dollar regains ground on short covering ahead of U.S. inflation data, following a muted reaction to mixed labour market figures. The euro remains under pressure from weak German business sentiment and softer eurozone data. However, downside may be capped as markets look ahead to the ECB’s policy decision on Thursday, where a relatively hawkish tone could support the single currency.

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GBPEUR weakens as sterling comes under renewed pressure following softer UK inflation, which has cemented expectations of a Bank of England rate cut. In contrast, the euro has been more resilient as markets look for a firmer stance from the ECB despite recent soft data, widening the policy divergence between the two central banks. With the BoE seen easing sooner and more aggressively than the ECB, the near-term bias for GBP/EUR remains tilted to the downside.

GBP slides toward 1.3300 after softer-than-expected UK inflation, reinforcing expectations of a Bank of England rate cut and weighing heavily on sterling. Headline and core CPI both undershot forecasts, strengthening the case for a more dovish policy stance as inflation pressures continue to ease. Markets are now pricing in a high probability of a December BoE cut, with some analysts seeing a large majority on the MPC voting in favour. While underlying services inflation remains sticky, the broader cooling in prices and labour demand keeps the pound under pressure.