The Morning Update

The USD steadied, while oil prices dipped, as equity markets and US yields remain mixed ahead of the US rate decision and the tariffs deadline. The USD snaps a four-day gain as investors become cautious ahead of the Fed's interest rate decision, following its rally after the EU-US trade deal was announced on Sunday. Equity markets struggle to gain traction ahead of the US interest-rate decision as investors also have to balance a heavy load of major company earnings. Fed policymakers are largely expected to hold rates steady for a fifth consecutive meeting, despite pressure from the White House on the Fed to lower borrowing costs. "We don't expect the Fed to cut rates, but it will be extremely interesting to see how Powell evades the ongoing pressure from the White House," said Klement, at Panmure Liberum. "The latest trade deals will add to inflation pressures in the US, giving the Fed less room to cut rates in the near term." Elsewhere, oil prices ease as markets weigh supply risks after the US ultimatum to Russia. Bitcoin gains 0.5% to $118,000, while gold prices edge higher and silver prices ease in early trading. In focus today, US ADP Employment Change, US GDP, the Canadian, US and Japanese interest rate decisions will drive the currency market direction intraday.

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In other news. The Eurozone economy eked out better-than-expected 0.1% growth in Q2. Stock futures inch higher as investors analyze earnings and await the Fed's rate decision. Russia's massive earthquake triggers tsunami warnings in the US and Japan. HSBC profits slide 29% due to hits from China and restructuring. The Trump administration moves to scrap the Obama-era rule on CO2 pollution. The US says an extended trade war truce with China hinges on Trump's approval. France seeks US tariff exemption for champagne and other drinks. The Bank of Canada is seen holding rates as trade clouds linger. Trump's tariffs give chocolate makers in Canada and Mexico on edge over US firms.

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In currency markets. Currency markets are largely sidelined as investors remain hesitant to trade ahead of several key US economic data releases and central bank rate decisions in the US, Canada, and Japan. CNY & Asian currencies are generally flat against the USD. Trading currencies are mixed, with AUD weakening by 0.25%. ZAR, CZK, DKK, NOK, SEK, NZD, KWD, and CHF are flat, while JPY firms by 0.25% against the USD.

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In commodity markets. Oil prices weakened by 0.65%. Natural Gas prices rallied by 1%. Gold, Copper and Soybean prices are up 0.1%. Silver prices fell 0.25% and Wheat prices eased by 0.25%.

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CAD holds near eight-week lows against the USD as the loonie remains under pressure ahead of the US August 1st US/Canada trade deadline. Elsewhere, the TSX hit a record high on Tuesday as Celestica jumped and commodity prices rose. Australia reopened access to Canadian beef, lifting a 22-year ban, and Canadian aluminum smelters have started diverting primary metal away from the US in response to the US tariffs. We anticipate the loonie will hold in a tight trading range ahead of the US economic data release and the Canadian and US interest rate decisions. Markets widely expect the BoC and Fed to keep their interest rates on hold today, with investors monitoring the central bank statements for signals of future rate direction.

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EURCAD remains steady, with investors sidelined ahead of the BoC interest rate decision.

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EUR is sidelined ahead of the Fed rate decision. The euro stalls, hovering around 1.1550 after upbeat German and Eurozone GDP reports, with caution ahead of the Fed's rate decision. German GDP y/y Q2 grew by 0.4%, beating expectations of 0.2%, while the Eurozone q/q Q2 grew at 0.1% beating expectations of zero growth. Some economists have expressed concern about the economic impact of tariffs on the ECB's rate outlook, with markets adjusting their expectations that the ECB could keep domestic interest rates on hold until Q1 2026. Intraday, the US data and the Fed's Chair's statement will provide direction to the single currency.

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GBPEUR advances as the fallout from the EU-US trade deal continues to put pressure on the euro.

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GBP firms, advancing through 1.3350 amid a softer USD. The pound gains in early trading amid the softer USD ahead of the Fed's rate decision, while the pound finds underlying support after the UK became the first country to secure a trade deal with the US. Markets remain divided on the pound's longer-term direction as uncertainty grows on the Bank of England's direction. "The rapid deterioration in the economy puts the BoE in a quandary, and begs the question as to whether the Monetary Policy Committee will prioritize propping up growth and the jobs market, or maintaining price stability," said Diaz-Alvarez, at Ebury. Intraday, US data releases and the Fed statement will drive the direction of the pound.

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