The Morning Update

The USD holds steady, oil prices slip, equity markets are mixed, and US yields are up as increasing risk puts pressure on markets. The US dollar is steady in early trading, holding narrow ranges as markets await key US labour market data that will shape the Federal Reserve’s policy outlook. Geopolitical tensions, including developments in Venezuela, have faded into the background as investors focus squarely on macroeconomic signals. The dollar has edged higher against the euro following softer German inflation, while broader USD direction hinges on upcoming jobs data and clarity around future Fed leadership. Global equity markets are mixed, with US stock futures edging lower as investors pause after early-year gains and reassess risk. Geopolitical uncertainty, including US actions in Venezuela and renewed focus on strategic regions such as Greenland, has added to caution, even as the broader growth outlook remains intact. Near term, markets appear to be entering a consolidation phase as investors await further economic data to guide positioning. Elsewhere, oil, bitcoin and gold have all eased as markets take a more cautious stance and reassess positioning after recent volatility. With geopolitical risks fading into the background, attention is shifting back to macroeconomic data for near-term direction. On the economic front, focus will be on the US ADP Employment Change, CAD Ivey PMI, US ISM Services PMI, and US JOLTS Job Openings to provide direction to currency markets.

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In the news. US says using military force is among 'options' to acquire Greenland. India's economy is estimated to grow 7.4% in fiscal year 2026 despite looming trade uncertainties. Goldman Sachs tops global M&A ranking with $1.48 trillion in deals. US-Venezuela oil deal angers China, pushes prices down. Giorgia Meloni plans an overhaul of Italy's voting system to aid re-election. Eurozone inflation falls to 2% in December. Short Sellers increase bets against Trump Media Group over nuclear fusion merger. France and the UK commit to deploying troops under the proposed Ukraine peace deal. Toronto home sales fall for a third straight month on economic uncertainty.

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In currency markets. Against the US dollar, the South African rand has weakened, reflecting ongoing sensitivity to global risk sentiment and broader EM pressures. The Japanese yen has edged higher, supported by selective safe-haven demand amid investor caution. Meanwhile, the Swiss franc has traded steadily, holding its ground amid balanced risk conditions and limited directional catalysts. CNY & Asian currencies on average slip 0.1% against the USD. Trading currencies mostly come under renewed pressure, with ZAR weakening 0.5%, CZK falling 0.3%, KWD easing 0.2%, MXN, CHF, AUD, NOK, DKK, and PLN flat, JPY, SEK & NZD up 0.1% against the USD.

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In commodity markets. Oil prices slipped 0.3%. Natural Gas prices rallied 4.6%. Gold eased 0.5%. Silver prices tumbled 2.1%. Copper prices weakened 0.9%. Coffee prices strengthened 2%. Soybean prices firmed 0.8%, and Wheat prices gained 0.6%.

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CAD is flat in early trading while oil prices remain under pressure after US President Trump said Venezuela will supply millions of barrels of oil to the United States, raising concerns about global oversupply and competition with Canadian crude. With today’s Ivey Purchasing Managers Index and Friday’s key Canadian unemployment report looming, markets are watching for fresh signals that could influence the Bank of Canada’s policy outlook and near-term direction for the Loonie.

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EURCAD is flat in early trading as softer Eurozone inflation pressures on the euro are offset by ongoing uncertainty around oil prices and the Canadian outlook. While easing inflation reinforces expectations for a steady ECB policy stance, subdued crude prices continue to cap CAD upside given oil’s importance to Canada’s trade balance. Near term, direction will hinge on incoming inflation signals in Europe and domestic data in Canada, alongside further moves in energy markets.

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EUR has eased below 1.1700 as softer Eurozone inflation data weighs on the euro and reinforces expectations that the ECB will keep rates on hold. Headline inflation has moved closer to target, with core measures also easing, limiting near-term upside for the single currency. Meanwhile, the US dollar is holding firm ahead of key US labour market data, which will be critical for shaping near-term Fed expectations and the pair's direction.

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GBPEUR is holding near its strongest level in over three months, with sterling benefiting from softer Eurozone inflation and ongoing weakness in euro-area activity, particularly in Germany. December inflation data confirmed easing price pressures across the Eurozone, reinforcing expectations that the ECB will remain cautious and limiting support for the euro. In contrast, the pound is consolidating gains as markets weigh a gradual BoE easing path against a relatively quiet UK data calendar, leaving the cross firm near recent highs.

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GBP is holding near the 1.3500 level, close to its highest level in over three months, as sterling consolidates after a strong recent run. Reduced UK fiscal and political risk, alongside expectations of a gradual easing path by the Bank of England, continue to underpin the pound, while the US dollar remains range-bound ahead of key US labour and services data. Near term, US data releases are expected to dictate direction, with GBP/USD likely to remain anchored around current levels barring a surprise.

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