The Morning Update

The USD slips, oil prices are down, equity markets are mixed, and US yields rise amid political and economic uncertainty. The USD held near two-month highs, supported by safe-haven demand amid political uncertainty and the prolonged U.S. shutdown. Fed Chair Powell’s cautious, “wait-and-see” remarks tempered gains, though the Fed remains alert to inflation risks. Global equity markets turned cautious on Friday as investors weighed stretched valuations and looming earnings reports following months of AI-driven gains. The S&P 500’s rally stalled near record highs, with analysts warning of market fatigue and rising sensitivity to negative surprises after an extended run-up. European stocks slipped, while Asian markets were mixed — Japan’s Nikkei retreated amid political uncertainty, and Chinese shares fell as Beijing tightened export controls on rare earths. U.S. futures steadied in Asian trading, supported by optimism ahead of corporate earnings season starting next week. Despite recent volatility, analysts noted that resilient growth, strong corporate profits, and expectations of further Fed rate cuts continue to underpin the broader market outlook. “Is AI a bubble? Not yet, at least not to the extent that I think a ‘pop’ is imminent,” said Tom Essaye at The Sevens Report. “This isn’t a valuation bubble like we saw with pets.com and others in the late 1990s. It’s a capital expenditure bubble.” Elsewhere, oil prices eased on Thursday amid fading geopolitical risk premiums following ceasefire talks in Gaza, with Brent and WTI both slipping ~0.5%. Meanwhile, gold extended its gains on fresh safe-haven demand, while Bitcoin strengthened further as investor appetite for non-dollar assets intensifies. In focus today, the CAD Unemployment report, US Michigan Consumer Sentiment Index and Fed's Goolsbee and Musalem speeches will help provide direction to currency markets today.

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In the news. Nobel Peace Prize awarded to Venezuelan opposition leader Maria Corina Machado. China opens antitrust probe of Qualcomm's Autotalks deal. Google search comes under renewed scrutiny in the UK as competition watchdog flexes new powers. US and Finland agree to build 11 icebreakers in Arctic security push. China launches customs crackdown on Nvidia AI chips. Canada-US-Mexico trade deals are over, says Mexican lawmaker. Canada post union moving to rotating strikes. Gazans return to wrecked homes as Israeli forces pull back under ceasefire. Baltic states plan for mass evacuations in case of a Russian attack. Ray Dalio warns of soaring debt and 'civil war' brewing in the US.

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In currency markets. The euro and yen both lagged—France’s political drama is eroding confidence in the euro, while Japan’s political shift and speculation about limited BOJ tightening have weighed heavily on the yen. With U.S. economic data largely frozen due to the shutdown, markets are hanging on remarks from Fed Chair Powell and other policymakers for clues to the next rate move amid high uncertainty. CNY and Asian currencies are flat on average against the USD. Trading currencies remain volatile, with KWD, ZAR and NOK weakening 0.3%. MXN & AUD down 0.1%, NZD and PLN flat, CHF, JPY, SEK, and DKK are up 0.1%, and CZK strengthens 0.35% against the USD.

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In commodity markets. Oil prices fell 0.%. Natural Gas prices tumbled 1.8%. Gold prices strengthened by 1%. Silver prices rallied by 2.5%. Copper prices are up 0.1%. Coffee prices gained by 0.75%, Soybean prices fell 0.7%, and Wheat prices are flat.

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CAD weakened to a near six-month low, slipping past the 1.40 level as investors sought safety in the U.S. dollar amid global uncertainty and falling oil prices. The loonie remains pressured ahead of Friday’s employment report, which is expected to show only modest job growth and a slight uptick in unemployment to 7.2%, reinforcing expectations of another Bank of Canada rate cut later this month. Adding to the uncertainty, Statistics Canada warned that key trade data for September could be delayed due to the ongoing U.S. government shutdown, which has disrupted cross-border data flows crucial for Canada’s economic reporting.

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EURCAD is showing signs of stabilization as markets await Canada’s upcoming unemployment report for fresh direction. Recent weakness in the euro — driven largely by French political instability — has given the loonie some breathing room, especially with firmer commodity prices offering support to CAD.

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EUR steadies in early trading, but is heading for its largest weekly decline in nearly a year as France’s deepening political crisis continues to weigh on sentiment. President Emmanuel Macron’s struggle to appoint a new prime minister and pass a budget has heightened investor concerns over France’s widening deficit and added to broader worries about slowing growth in Germany and across the Eurozone. The USD meanwhile, has gained ground on safe-haven demand, with the dollar index hovering near two-month highs around 99.50, supported by expectations of further Federal Reserve rate cuts despite the ongoing U.S. government shutdown. ECB officials have struck a cautious tone, suggesting that rates should remain at current levels while acknowledging contained inflation and modest downside growth risks. Traders now await the University of Michigan’s consumer sentiment data for additional direction, as stronger U.S. confidence could further reinforce dollar strength and cap any euro rebound.

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GBPEUR weakened today as the pound underperformed against the stronger USD, with GBP/USD hitting a two-month low near 1.3280 amid renewed dollar demand. The euro steadied in early trading but is on track for its largest weekly decline in nearly a year, pressured by France’s political turmoil and concerns over Macron’s ability to form a new government and pass a budget. With the dollar buoyed by safe-haven flows and hints of further Fed easing, GBPEUR faces headwinds despite cautious ECB commentary and dovish remarks from U.S. policymakers.

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GBP remains under pressure, trading near a two-month low around 1.3280 against the U.S. dollar, as the greenback holds firm on persistent safe-haven demand amid global political uncertainty. Despite recent dovish comments from Federal Reserve officials suggesting further rate cuts later this year, investors continue to favor the dollar due to its relative stability and yield advantage. In contrast, the UK outlook remains clouded by growing fiscal concerns, with markets bracing for potential tax increases in the upcoming Autumn Budget to address ballooning debt levels. Bank of England policymaker Catherine Mann reiterated that monetary policy should remain restrictive for longer to curb lingering inflation risks, pushing back against expectations for near-term easing. Traders now turn their focus to today’s U.S. consumer sentiment and inflation expectations data, which could influence the dollar’s momentum and set the near-term tone for GBPUSD direction.