The Morning Update

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Market opens with the USD slightly stronger, oil prices under pressure, and both equities and bond yields on the rise. Trump says the US has agreed to a "massive" trade deal with Japan, one of the country's largest trading partners. Under the trade agreement, Japan would open its economy to US goods, including cars, trucks, rice and certain agricultural products. The US administration continues to ramp up pressure on the Fed, with Treasury Secretary Bessent now questioning the institution’s overall role. While not directly attacking its monetary policy, criticism is shifting to issues like renovation costs and claims the Fed is overstepping its mandate—fueling speculation that the government may be seeking a way to justify greater oversight and, indirectly, gain influence over monetary policy. On the economic front, the S&P global Manufacturing PMI and S&P Global Services index are expected to be released later this afternoon. The U.S. announced its withdrawal from the United Nations Educational, Scientific and Cultural Organization (UNESCO), with the State Department stating continued membership is not in the country's national interest.

News Headlines. Hankook Tire plans to expand its U.S. factory to produce truck and bus radial tires later this year, while doubling annual tire capacity. Thousands protest as Zelenskyy signs bill weakening anti-corruption agencies. Israeli strikes in Gaza killed at least 21 people late Tuesday and early Wednesday. Desperation is mounting in the Palestinian territory of more than 2 million, which experts say is at risk of famine because of Israel’s blockade and nearly two-year offensive.

In currency markets. Japan secured a favorable US trade deal, cutting auto tariffs to 15% without limits—boosting its export edge. However, rumors of PM Ishiba’s possible resignation now revive political uncertainty, posing a risk for the JPY. ECB set to release monetary policy decision which is expected to offer some clues about their near-term policy decision. Following the US-Japan agreement, the JPY strengthened by 0.22%. Other Asian currencies also gained, with the CNY up 0.18%, KRW 0.33%, and MYR 0.08%. The AUD and NZD outperformed, rising 0.61% and 0.77%, respectively. The trading currencies are mixed with the ZAR up 0.04% and the MXN down 0.08%.

In commodity markets. Crude oil prices held steady on Wednesday, supported by improved market sentiment after the U.S.-Japan tariff deal. Gold and Silver loses lustre as US-Japan deal curbs safe-haven status. In the agricultural commodities we are seeing a rise in soybean prices (0.625), Wheat (0.23%) and Lumber (0.67%).

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USD/CAD weakens for a fourth day, while the CAD gains on improved sentiment after the US-Japan trade deal boosts global trade hopes. However, price concerns are limiting the USD weakness.

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EUR/CAD is under pressure this morning but remains for the time being in the 1.5900-1.600 range.

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EUR/USD slips Wednesday after a three-day rally, pressured by stalled US-EU trade talks and a firmer USD. ECB to announce interest rate decision later today which are expected to remain unchanged.

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GBP/EUR weakens for a third day after BoE Governor Bailey’s remarks on global yield curve steepening. The pair remains mid-range compared to last week’s levels.

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GBP/USD rises broadly on Wednesday despite renewed UK fiscal concerns, after data showed borrowing at its second highest since 1993. Markets now await Thursday’s PMI data for signs of continued weakness in private sector hiring.

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