The Morning Update

The USD holds steady, oil prices weaken, equity markets and US yields are mixed as investors focus on the Fed. The USD is holding steady as markets brace for a pivotal week of central bank meetings, with a Fed rate cut largely priced in but uncertainty high given a divided committee. Expectations for a “hawkish cut” — where policymakers signal a high bar for further easing — could lend support to the dollar if investors scale back forecasts for additional reductions in 2026. Despite recent softness, speculative positioning has turned more bullish, reflecting investor confidence that resilient U.S. growth and still-elevated inflation may limit how far the Fed can ease. Global equity markets are mixed as the week opens, with investors adopting a cautious tone ahead of the Federal Reserve’s final meeting of the year and seeking clarity on the 2026 rate path. U.S. stocks continue to edge toward record highs, supported by a resilient economy and strong seasonal trends. At the same time, gains in Europe and Asia are more muted amid lingering uncertainty over inflation and policy trajectories. Even so, risks remain in focus, including the possibility of a less-dovish Fed, delayed tariff impacts, and signs of strain emerging in the labour market. Elsewhere, Oil prices eased off two-week highs as traders reassessed demand prospects and awaited clearer signals on global supply. Gold slipped on firmer yields, while Bitcoin firmed above $92,000 as sentiment stabilized ahead of key central bank events. In focus this week, Monday BoE Speakers & the RBA Interest Rate Decision. Tuesday, German Trade Balances, US ADP Employment Change & JOLTS Job Openings. Wednesday, The BoC & Fed Interest Rate Decisions. Thursday, BoE Governor Bailey Speech & US Initial Jobless Claims. Friday, German Inflation report, UK GDP, & a flurry of Fed speakers will help drive the direction of the currency markets.

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In the news. Zelenskiy Says No Accord So Far on Eastern Ukraine in US Talks. Berthshie Hathaaway's Todd Combs, investment lieutenant to Buffett and Geico CEO, is leaving for JPMorgan. Stock futures are little changed after Wall Street notched a back-to-back winning week. China's trade surplus tops $1tn for the first time. European allies to rally support for Ukraine as US pressure mounts. Powell's vote-gathering challenge shows a test for the next Fed Chair. Thailand launches airstrikes at Cambodia as border tensions reignite. Canadians face confusion over new US border crossing rules. Air Transat is to halt flights ahead of strike action.

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‍In currency markets. The euro edged higher, supported by rising euro zone bond yields and signals from ECB policymakers that the next policy move could even be a hike. The Australian dollar remained firm after touching a multi-month high, with robust domestic data keeping expectations alive for a potential RBA tightening cycle. In contrast, the Norwegian krone weakened, under pressure from softer oil prices and a more cautious tone in broader markets. CNY flat, while Asian currencies slip 0.1% on average against the USD. Trading currencies came under pressure, with NOK, KWD, & ZAR weakening 0.35%, JPY, MXN, SEK, & CZK easing 0.2%, CHF, AUD, DKK, & PLN are flat, and outlier NZD strengthens 0.4% against the USD.

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In commodity markets. Oil prices weaken by 1%. Natural Gas prices tumbled by 4%. Gold, Copper & Coffee prices down by 0.2%. Silver prices eased by 0.4%. Soybean prices fall 0.7%, and Wheat prices up 0.1%.

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CAD slipped in early trading after last week’s surge, but it remains near 10-week highs following a third straight month of strong job gains that reinforced expectations the Bank of Canada will hold rates steady on Wednesday. Markets are also looking ahead to the Federal Reserve decision the same day, where a rate cut is widely expected, adding a broader layer of caution to currency trading. With resilient labour data and still-firm core inflation, investors see limited scope for any near-term easing from the BoC and expect policy to remain on hold for the foreseeable future.

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EURCAD has pushed through the 1.61 level as firm euro support from hawkish ECB rhetoric combines with a softer Canadian dollar following its pullback from recent highs. With markets awaiting both Fed and BoC decisions this week, the cross is benefiting from euro resilience while the loonie consolidates after last week’s strong jobs-driven rally.

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EUR is edging higher, testing 1.1650 as markets remain cautious ahead of Wednesday’s closely watched Fed decision, with traders reluctant to take strong directional positions. Expectations for a Fed rate cut continue to support EUR/USD, while hawkish-leaning comments from ECB officials — including Isabel Schnabel’s remark that the next move could even be a hike — are providing the euro with an additional lift. With a sparse data calendar today and investors awaiting key U.S. releases, including JOLTS and PCE, later in the week, the pair is likely to remain range-bound ahead of the Fed rate decision.

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GBPEUR is trading flat as the pound’s steady tone is offset by a lack of meaningful follow-through in the euro, keeping the cross confined to recent tight ranges. Positive Eurozone data and hawkish-leaning ECB comments have not been enough to lift EUR/GBP back above 0.8750, while the pound remains moderately supported ahead of BoE speakers and key UK data later in the week. With both currencies anchored by cautious central-bank outlooks, the pair is likely to remain directionless in the near term.

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GBP is trading flat above 1.3300 as markets turn cautious ahead of Wednesday’s Fed decision, limiting follow-through after last week’s gains. The pound finds some support from steady domestic data, though expectations that the Bank of England will begin easing in Q1 2026 continue to cap broader upside. With both the Fed outcome and this week’s UK GDP release in focus, investors are reluctant to take strong positions until policy signals from the BoE and Fed become clearer.