The Morning Update

The USD eases, oil prices rally, while equity markets and US yields are mixed amid increasing Middle East tensions. The U.S. dollar holds near two-week highs after Fed Chair Kevin Warsh’s hawkish Jackson Hole remarks strengthened expectations for further monetary tightening, with renewed U.S.-Iran tensions also supporting demand for the greenback. Markets now price in roughly a 58% chance of a September rate hike, with attention shifting to Friday’s U.S. nonfarm payrolls report for the next major signal on the Fed outlook. Global equity markets are mixed as renewed U.S.-Iran tensions and higher oil prices weigh on risk sentiment, while rising global bond yields add further pressure. Investors are also digesting Fed Chair Kevin Warsh’s hawkish Jackson Hole remarks, which have increased expectations for a September rate hike. Elsewhere, oil prices rally as renewed U.S.-Iran hostilities raise concerns over Middle East supply disruptions, while gold and Bitcoin prices retreat amid higher bond yields and increased expectations for further Fed tightening. Today’s economic calendar includes preliminary German CPI and HICP inflation, followed by U.S. Chicago PMI, with the German inflation data the main focus as markets assess expectations for a September ECB rate hike.

‍

News Headlines. The US and Iran exchange strikes for the first time since July as Trump threatens strategic oil hub. China's Xi builds diplomatic clout with multiple state visits ahead of Trump summit. Russia preparing 'massive strikes' on Ukraine's energy sites after deadliest attack of the year. Stock futures after US strikes; Wall Street heads for winning month. Canadians set to cast their ballots in BC, Ontario and Quebec by-elections. Japan's bonds and yen under pressure after Warsh's Jackson Hole speech. The Bank of England Governor warns G20 of danger AI poses to financial system. Iceland rejects talks on EU entry.

‍

In currency markets. Against the USD, currencies are generally firmer as the dollar eases from a two-week high, although Fed Chair Kevin Warsh’s hawkish comments continue to support September rate-hike expectations. The Japanese yen remains the key focus near 160, having surrendered much of its post-intervention gains and renewing speculation that Tokyo — potentially alongside Washington — could intervene again.

‍

In commodity markets. WTI +3.39% | Nat Gas -0.24% | Gold -0.83% | Silver +0.01% | Copper +0.11% | Palladium -2.10% | Coffee Flat | Cocoa Flat | Soybeans -0.19% | Wheat -0.96%

‍

CAD holds steady in early trading despite rallying oil prices, with ongoing Canada-U.S. trade tensions and a wide U.S.-Canadian yield gap limiting support from stronger crude and last week’s robust 3.3% GDP growth. Focus turns to Wednesday’s BoC meeting, where the Bank is widely expected to leave rates unchanged at 2.25% as policymakers assess the economic impact of the latest tariff dispute. Attention will then shift to Friday’s Canadian employment report for further evidence on the strength of the domestic economy.

‍

EURCAD edges higher in early trading as firmer German inflation supports expectations for further ECB tightening, while the Canadian dollar remains constrained by ongoing Canada-U.S. trade tensions despite stronger oil prices and last week’s solid GDP report. The near-term focus shifts to Wednesday’s BoC decision, where rates are widely expected to remain unchanged at 2.25%, leaving relative central-bank expectations supportive of EURCAD in the near term.

‍

EUR edges higher toward 1.1600 as the U.S. dollar gives back some of Friday’s gains following Fed Chair Kevin Warsh’s hawkish Jackson Hole remarks. Firmer German inflation data is also supporting the euro by reinforcing expectations for an ECB rate hike, although the prospect of further Fed tightening continues to limit the upside. Broader Eurozone inflation data this week will be closely watched for confirmation that price pressures remain strong enough to justify further ECB tightening.

‍

GBPEUR holds relatively steady, with GBP continuing to benefit from the current interest-rate advantage over the euro despite markets scaling back expectations for further BoE tightening. Looking further ahead, the policy outlook is becoming less supportive for GBP, with markets expecting ECB rates to move higher while the BoE is likely to remain comparatively cautious through 2026, suggesting the current rate divergence could gradually narrow. With UK markets closed today, near-term direction is likely to remain driven by broader currency flows and incoming Eurozone inflation data.

‍

GBP is the best-performing G10 currency in early trading, with GBP/USD strengthening as the U.S. dollar gives back some of its recent gains. While expectations for a BoE rate hike have softened—with a full 25bp increase no longer priced by year-end—UK inflation remains elevated and three MPC members voted to raise rates at the Bank’s last meeting, providing some underlying support for GBP.  With UK markets closed for the bank holiday and no key domestic data today, direction is likely to remain largely dependent on U.S. developments, culminating in Friday’s nonfarm payrolls report.

‍