The Morning Update

The USD eases, oil prices are weakening, equity markets are down, and US yields are mixed as investors shun risk. The USD steadied after recovering from a near 0.5% fall after President Trump's unprecedented move to fire Fed Governor Lisa Cook, raising concerns over the Fed's independence. In a letter, President Trump stated that he was firing Cook due to alleged improprieties in obtaining mortgage loans. In response, Cook said Trump has no authority to fire her from the central bank, and she will not resign. European equities and US futures fell, as risk-on sentiment faded after President Trump's bid to oust Fed Cook and the increasing political turmoil in France. French Prime Minister Bayrou called a confidence vote that could bring down the government as early as September. The French CAC 40 index tumbled 2%, the most in nearly a month. Risk sentiment took a further hit after Trump renewed his threats of fresh tariffs and export restrictions on advanced technology and semiconductors in retaliation for digital services taxes imposed overseas. Elsewhere, oil prices tumbled as traders assessed risks to supplies and the Fed's turmoil. Bitcoin weakens nearly 1% to $110,300, while gold is steady and silver prices decline in early trading. Investors will be focused on US Durable Goods, Housing Price Index, Consumer Confidence, BoE's Mann and BoE Governor Macklem speech will help provide direction to currency markets.

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In the news. Trump says he is firing Fed Governor Lisa Cook 'effective immediately.' Bayrou risks French premiership in confidence vote next month. The prospect of a government hits French assets. Merz and Carney vow deeper cooperation on critical minerals. French and Korean nuclear groups in a stand-off over foreign subsidy probe. Canadian and US officials to meet after Canada removes some tariffs. South Korea's Lee dodges 'Zelensky moment' at high-stakes Trump summit. India holds firm as Trump's punitive tariffs loom. German industry sheds almost 250,000 jobs in worsening downturn, study shows. US & Russian officials discussed energy deals alongside the latest Ukraine peace talks.

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In currency markets. Currency markets remain steady after a volatile start to the week, with investors cautious amid the turmoil in France and the Fed, and increasing caution ahead of Friday's critical US inflation report. CNY slipped 0.15%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with NOK weakening 0.35%, CHF, KWD, AUD, NZD, SEK and ZAR flat, and JPY, MXN, DKK and CZK gaining 0.25% against the USD.

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In commodity markets. Oil prices tumbled 1.7%. Natural Gas, Copper and Silver prices weakened by 0.65%. Gold prices are flat. Wheat prices firmed by 0.25%, and Soybean prices strengthened by 0.55%.

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CAD remains steady in early trading as risk sentiment wanes amid growing uncertainty over the Fed's independence following the President's attempt to fire Fed Governor Cook. BoC Macklem's speech today is expected to focus on easing trade-related inflation pressures from tariff rollbacks, hint at possible rate cuts while stressing data dependency, and emphasize flexibility amid ongoing US trade uncertainty.

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EURCAD is strengthening because the euro remains supported by a less dovish ECB, while the Loonie remains under pressure on a cautious BoC policy and softer oil prices.

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EUR strengthens despite Fed uncertainty, French political turmoil, and German economic concerns. The euro extends its gains towards 1.1650 as the USD softens amid uncertainty over the Fed's next steps following its attempt to fire Fed Governor Cook. While in France, Prime Minister Bayrou's no-confidence vote threatens to bring down his government as early as next month. According to the EY study, the downturn in German industry is accelerating, with nearly 250,000 jobs lost in the sector since 2019. The sharpest decline has occurred in the automotive sector, resulting in over 51,000 jobs lost in a single year. Intraday, political updates and US data releases will help provide direction to the single currency.

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GBPEUR holds steady in early trading with investors sidelined as risk-on sentiment wanes.

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GBP edges higher amid a softening USD and easing risk sentiment. The pound finds some early support amid a softening USD after President Trump sacked Governor Cook and Governor Cook's response, saying she isn't leaving. Intraday, BoE's Catherine Mann will speak today, and she is expected to emphasize that quantitative tightening increases long-term yields that rate cuts can't fully offset. She will likely urge caution on easing until inflation decreases. Investors will also be focusing on the US Durable Goods, Housing Price Index and Consumer Confidence to help provide intraday direction for the pound.