The Morning Update

The USD steadies, oil prices weaken, equity markets are up, and US yields are mixed in thin holiday markets. Currency markets and US yields remain confined in narrow trading ranges. Equity markets have been testing their highest levels since January 2022 as investors weigh the 2024 outlook for interest rates, and the S&P 500 futures have changed little as the index nears its all-time highs. Oil prices reversed on Boxing Day gains as some shipping traffic returned to the Red Sea. With many investors taking extended Christmas holiday vacations and the lack of any fresh economic data, we anticipate currency markets will hold within their current trading ranges.

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In other news. The EU readies Euro 20 bln plan B to fund Ukraine. Israel-UN relations plunge to a new low as the Gaza war rages on, Sweden's NATO bid approved by the Turkish parliamentary committee. Eurozone set for weak growth in 2024, say economists. Ukraine destroys Russian landing ship in a further blow to Black Sea fleet. SoftBank gets $7.6 billion T-Mobile stake windfall, shares soar. Toyota's global output surged to a record in November on strong demand.

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In currency news. The USD stalls at fresh 5-month lows on rate cut expectations in thin holiday markets. The GBP holds steady; in 2023, it gained 5% vs USD, 3% vs Euro, and 8.5% vs. JPY. AUD & NZD edges to a 5-month high vs USD, while the CNY steadies at a 1-week low vs USD. CNY is up 0.1%, while Asian currencies are down 0.1% on average vs USD. Trading currencies are mixed, with JPY down 0.2%, while NZD & NOK are flat, AUD, SEK & CHF are up 0.15%, MXN strengthened 0.3%, and ZAR rallies 0.9% vs USD.

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In commodity markets. Oil prices weakened by 0.6%, Natural Gas prices rallied by 4.4%, Gold prices gained by 0.3%, Silver prices weakened by 0.5%, Copper prices firmed by 0.5%, Wheat prices slumped by 1.2% and Soybean prices eased by 0.25%.

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CAD holds near fresh 5-month highs, with the loonie rallying 2.7% in December as the USD remains under pressure as easing US inflation pressures increases the prospect of the Fed easing interest rates in 2024. Domestically CAD inflation levels remain stubborn, and the BoC maintains its rhetoric that Canadian interest rates remain on hold. With the lack of any fresh economic data releases, we anticipate CAD will hold within its current trading range today.

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EURCAD edges off three-month lows as weakening commodity prices puts some intraday pressure on the currency.

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EUR steadies at 5-month highs, holding at 1.1050 as the USD remains under pressure. Euro is trading in a tight trading range, pivoting around 1.1050 with the lack of clear direction amid the final trading week 2023. The USD continued under pressure after Friday's US PCE came in lower than expected, which increased speculation that the Fed could lower interest rates in H1-24. Intraday, we expect markets to remain range-bound with thinner than normal markets.

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GBPEUR holds at 6-week lows amid light trading with the lack of market-impacting economic data releases.

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GBP stalls below 1.2750 in the thin holiday trading markets. The pound holds steady vs USD with the expectations of a divergence in interest rates between the FED and BoE, as the Fed is expected to ease interest rates in 2024, while stubborn UK inflation levels are expected to keep UK interest rates on hold. Increasing concern in the Red Sea is seeing a negative shift in risk sentiment and could put short-term pressure on the pound. Intraday, we expect to see the pound to stall below 1.2750.