The USD trades lower, oil prices rallied, equity markets moved lower, and US yields are flat. The U.S. dollar is trading lower this morning, its lowest level in more than two weeks. Much of the move has been driven by significant strength in the Japanese yen, although the USD is also softer against the Canadian dollar. Last week’s surprise Non-Farm Payroll numbers increased expectations of a possible rate hike. This week’s PPI (Thursday) and CPI (Friday) will offer some clarity prior to the Fed meeting September 15-16th. Bitcoin is off 0.30% to start the week.
News Headlines: Canada’s retaliatory tariffs of 15%–50% on $20 billion of U.S. goods took effect today, escalating the Canada-U.S. trade war after negotiations collapsed. Iran-backed Houthis launched a major drone and missile attack on four southern Saudi cities, striking military and oil facilities. At least 73 people were wounded, marking one of the largest attacks on Saudi Arabia since the U.S.-Israel war with Iran began. Russia resumed heavy strikes on Kyiv after U.S. peace envoys departed, killing three and wounding 16, while Zelenskiy said the talks produced some promising peace ideas but no breakthrough.
In currency markets. The Bank of Japan is expected to raise rates 25 bps to 1.25% on September 17–18, with officials unlikely to opt for a larger 50bps hike despite inflation concerns. Global currency markets were dominated by broad US dollar strength as rising inflation concerns and geopolitical tensions boosted demand for safe-haven assets, with the British pound and euro among the biggest movers lower against the greenback, while commodity-linked currencies such as the Canadian dollar also weakened despite higher oil prices. Among the biggest losers this week, the KRW dropped 2.9%, SEK 2.29%, and the HUF 2.89%.
In commodity markets. Oil prices rallied by 2.6%. Natural gas is off 0.50%. Gold lost 0.17%. Silver dropped 0.24%. Copper moves 1.94% higher. Coffee remained under pressure, down 1.2%. Soybean edged 0.30% higher while Wheat is up 2.20%.
USD/CAD USD/CAD has retreated toward 1.3800 as surging oil prices support the Canadian dollar, outweighing for now the widening U.S.-Canada interest-rate outlook and escalating trade tensions.
EUR/CAD remains near 1.6050 as expectations for an ECB rate hike support the euro, while surging oil prices provide an offsetting boost to the Canadian dollar.
EUR weakened against the US dollar as escalating geopolitical tensions and surging energy prices fueled concerns over rising inflation and slowing economic growth across Europe. Investors also adjusted expectations for a more aggressive European Central Bank stance as policymakers signaled growing concern that higher oil prices could further intensify inflationary pressures.
GBP/EUR remains near 1.1650, with sterling lacking momentum while expectations for another ECB rate hike this week continue to underpin the euro.
GBP held just above $1.35, supported by expectations for further BoE rate hikes as surging oil and gas prices fuel renewed UK inflation concerns.
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