The Morning Update

The USD remains steady, oil prices are firm, and equity markets and US yields are mixed as the truce holds. The USD Index is steady as the Iran and Israel ceasefire holds, helping buoy investor confidence. Crude oil prices bounce off multi-week lows, and US two-year yields test a fresh multi-week low. US futures extend gains as investors await the second day of testimony from Federal Reserve Chair Powell after the NASDAQ 100 closed at an all-time high on Tuesday. Investors are refocusing on the US economy, trade risks, and fiscal pressures on corporate earnings and growth after the turbulence caused by the nearly two-week conflict between Iran and Israel. "The market is moving on to the next thing, which is the tariffs deadline, and central banks," said Chovin at Coutts. "We are in a sequence where slightly weaker growth momentum is being positively received by markets, because it's causing renewed expectations for rate cuts." Elsewhere, Bitcoin rallies 1% to $106.6k, while gold and silver prices are static. Today's focus will be on the Fed Chair Powell's testimony and the US new homes sales change to help provide direction to currency markets.

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In the news. Trump with NATO 'all the way' after questioning mutual defence pact. The EU readies retaliatory tariffs to secure a better trade deal with Trump. Carney says Canada will meet the new NATO spending target by developing critical minerals. The Alberta Premier expects an oil pipeline proposal within weeks. Trump disputes Pentagon view, says Iran atomic sites 'destroyed'. Trump enters fraught two-week run as tax and trade deadlines loom. Iran-Israel ceasefire holding, Trump envoy says talks with Iran 'promising.' Mamdani on verge of winning New York City's Democratic mayoral contest after Cuomo concedes.

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In currency markets. Currency markets are steady, trading within tight ranges ahead of Fed Chair Powell's testimony and Thursday's US GDP report, as investors shift focus back to the US economic outlook. CNY & Asian currencies on average are flat against the USD. Trading currencies are mixed, with JPY weakening 0.5%, NOK falling 0.3%, CHF, NZD, and ZAR are down 0.1%, and KWD, MXN, AUD, and PLN are flat against the USD.

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In commodity markets. Oil prices rally 1.3%. Natural Gas, Wheat, Silver & Soybean prices slip 0.1%, Gold prices up 0.1% and Copper prices firmed by 0.1%.

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CAD is flat, holding above 1.3700 despite rallying oil prices and improved risk-on sentiment. Tuesday saw the Canadian annual inflation in May hold at 1.7%, while two core measures of inflation closely tracked by the BoC eased to 3%, which remains at the upper end of the central bank's target range. Investors see just a 34% chance of a BoC rate cut at its next meeting on July 30th, down from 38% before the CPI report. Investors will be focused on Fed Chair Powell's testimony for guidance, but many expect Powell to maintain his rhetoric to hold rates, with ongoing concerns for a higher inflation outlook. Technically, if we see CAD break through 1.3695, we could see the loonie advance to 1.3635.

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EURCAD holds steady near four-year highs as investors continue to favour the euro over the loonie amid the ongoing trade war against the US.

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EUR consolidates above 1.1600 on risk-on mood sentiment. The euro holds steady in early trading as the improved risk sentiment supports the single currency, as investors await the second day of Fed Chair Powell's testimony. With the lack of domestic economic releases, investors will be focused on the EU summit for any updates on the EU/US tariffs, with the deadline looming in two weeks. Intraday, the Fed Chair's testimony will be the primary driver of markets, ahead of Thursday's US GDP report and speeches from ECB Schnabel and De Guindos.

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GBPEUR stalls above 1.17, but the pound remains down 1.5% monthly against the euro as investors continue to favour the euro amid global geopolitical uncertainty.

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GBP struggles to hold above 1.3600, with markets sidelined ahead of Powell's testimony and BoE Bailey's comments Thursday. For a third trading session, the pound held in positive territory against the USD, holding near its highest level since February 2022. We anticipate the pound should maintain current levels, with the risk-sensitive currency finding support from the improved risk appetite amid easing tensions in the Middle East. Investors will be focused on the Fed Chair's comments and will scrutinize the comments for fresh hints on the timing of the next US rate cut.