The Morning Update

The USD eased, oil prices rally, equity markets rally, and US yields are mixed as Fed rate cut optimism lifts risk sentiment. The U.S. dollar is under pressure today after weak jobs data on Friday boosted expectations of a Fed rate cut this month, with markets pricing in as much as a 50 bps move. Political uncertainty abroad, including Japanese yen weakness from leadership turmoil and stronger euro/sterling, add to the dollar’s weakness, while upcoming U.S. inflation data will be the key catalyst for direction later this week. Global equities climbed at the start of a week packed with market-moving events, with Japanese equities advancing on a weaker yen after Prime Minister Shigeru Ishiba announced his resignation, while concerns over his successor weighed on long-dated bonds. In Europe, the Stoxx 600 added 0.2%, driven by strength in energy shares as oil prices rose, even as traders braced for a confidence vote likely to topple French Prime Minister Francois Bayrou’s government. U.S. equity futures also gained, recovering most of their prior losses as investors balanced hopes for Federal Reserve support against evidence of a rapidly cooling jobs market, and longer-dated Treasuries eased slightly. Elsewhere, oil prices rallied after OPEC+ output hike is seen as modest. Bitcoin, gold and silver prices all advanced as risk sentiment improves. In focus this week: Monday, no high economic releases. Tuesday, ECB Nagel & BoE’s Breeden speeches. Wednesday, US PPI ex food & energy. Thursday, ECB monetary Policy Statement, US CPI and US Initial Jobless Claims. Friday, EU Harmonized Index Consumer Prices, UK GDP, French CPI, Spain CPI, and Michigan Consumer Sentiment Index will help drive direction to currency markets this week.

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In the news. Chinese exports grow at its slowest rate in 6 months. OPEC+ agrees to boost output as Saudi focuses on revenue drive. Russia launches record mass drone attack on Ukraine. Japanese prime minister quits to make way for a new leader. France’s PM faces crucial confidence vote. EU steelmakers plead for tariffs on cheap imports to avert collapse. Putin faces tough choices at home as strain on Russia’s war economy mounts. Five killed in Jerusalem shooting. The US demands the EU stops buying Russian gas if it wants new sanctions on Putin. US raid on Hyundai plant leaves Korean companies reeling. Undersea cables cut in the Red Sea, disrupting internet access in Asia and the Mideast.

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In currency markets. The dollar slipped slightly as traders priced in further Fed easing, keeping pressure on the currency despite modest support from safe-haven demand. The yen weakened on political uncertainty following Prime Minister Shigeru Ishiba’s resignation, while the euro and sterling held firm on relatively hawkish central bank stances. CNY and Asian currencies are flat on average against the USD. Trading currencies are mixed with JPY & SEK weakened 0.35%, PLN down 0.15%. KWD, CZK, NOK & DKK are flat, MXN & CHF are up 0.1%, ZAR gained by 0.3%, and AUD & NZD rallied by 0.55% against the USD.

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In commodity markets. Oil prices strengthened by 2.1%. Natural Gas prices rallied 3.1%. Gold prices up 0.1%. Silver prices gained by 0.8%. Copper and Soybean prices firmed by 0.25%, Wheat prices are flat.

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CAD is expected to stay choppy this week after Friday’s weak U.S. jobs report boosted bets on a Fed rate cut, while Canada’s own disappointing jobs data tempered support for the loonie. The Bank of Canada is still expected to hold steady near term, but softer labour market signals add pressure for potential easing later this year. This divergence with the Fed favors CAD strength if oil prices remain firm, though the weak domestic jobs print limits momentum. As a result, USDCAD may trade in a range as markets weigh both central bank outlooks and incoming data.

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EURCAD has climbed as the euro hits new highs, driven by expectations of a relatively tighter ECB stance versus a potentially more dovish Bank of Canada following weak Canadian jobs data. While firm crude prices lend some support to CAD, euro momentum keeps the bias tilted to the upside.

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EUR is holding above 1.1700 as renewed U.S. dollar weakness offsets softer Eurozone data, including the further decline in Sentix Investor Confidence for September. Political risk lingers with the French confidence vote, but the euro remains underpinned by expectations that the ECB will maintain a relatively tighter policy stance ahead of Friday’s meeting. The pair’s resilience near recent highs highlights market preference for the euro in a softer dollar environment, with upcoming U.S. inflation data and ECB guidance set to be the key drivers of the next move. Near term, consolidation above 1.1700 suggests buyers remain in control unless political or data surprises shift sentiment.

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GBPEUR is steady today, with the pound supported by expectations that the Bank of England will stay cautious on rate cuts compared to the Fed. The pair is likely to hold in a narrow range as markets await Friday’s ECB meeting and watch political risk from the French PM confidence vote.

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GBP held steady in early trading after Friday’s strong rally, which followed weak U.S. jobs data that boosted expectations of a Fed rate cut this month. The Bank of England is seen holding off on cuts for now, giving the pound a relative advantage as UK inflation remains high compared to peers. Traders expect GBP to trade in tight ranges against the euro this week, while sterling also touched one-month highs versus the yen after Japan’s Prime Minister Shigeru Ishiba resigned.