The Morning Update

The USD is steady, oil prices are firm, equity markets are mixed, and US yields are up, with markets cautious ahead of the Fed. The dollar is holding steady ahead of Wednesday’s Fed decision, with traders reluctant to reposition before what is widely expected to be a 25-bp rate cut. Markets are also focused on the updated dot plot, where growing divisions among policymakers could shape expectations for the 2026 rate path and influence the dollar’s near-term direction. Global equity markets are mixed as traders remain cautious ahead of the Federal Reserve’s final policy decision of the year, leaving major indices largely directionless. A recent pullback in U.S. Treasuries, with yields hovering near two-month highs, has dampened risk appetite as investors scale back expectations for the pace of Fed easing in 2026. Broader sentiment is also weighed by signals from other central banks — including hawkish tones from Australia and the ECB — suggesting global easing cycles may be nearing an end, adding to the sense of uncertainty across markets. Elsewhere, oil and gold prices are firming, with crude supported by lingering supply concerns and bullion drawing steady safe-haven interest. Bitcoin, meanwhile, is retreating toward the $90,000 mark as investors pare back risk exposure ahead of this week’s key U.S. policy decisions. Today sees a light economic calendar with investors expected to remain on the sidelines ahead of Wednesday's key Fed & BoC interest rate decisions. Markets will be monitoring today's US ADP employment change and US JOLTS Job Openings for guidance.

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In the news. Microsoft to invest more than $5 billion in Canada over the next two years. China set to limit access to Nvidia's H200 chips despite Trump export approval. Investors increase bets on ECB rate rise as a threat to the US Dollar. The BoJ governor says the economy has weathered Trump's tariffs. Zelensky says European allies close to finalizing revised US peace plan. The US announces $12bn aid package for farmers hit by tariffs. EU backs migration 'return hubs' in echo of Trump's crackdown. Australia's social media ban set to take effect, sparking a global crackdown. Options traders are bracing for wild stock trading off the Fed decision. Trump threatens 'severe' tariffs on Canadian fertilizer 'if we have to'. Ottawa announces new immigration measures for foreign-trained doctors.

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In currency markets. The Australian dollar is firmer after the RBA held rates steady and signalled that further cuts are unlikely, reinforcing a more hawkish tilt. The yen has eased slightly, giving back its initial quake-related strength as broader risk sentiment remains cautious ahead of multiple central bank decisions this week. Meanwhile, the offshore Chinese yuan is modestly stronger, supported by signs from Beijing that policymakers remain focused on economic stability without rushing to introduce new stimulus. CNY is up 0.1%, while Asian currencies firmed 0.2% on average against the USD. Trading currencies improve, with JPY & KWD down 0.15%, CHF, MXN, NOK, DKK, ZAR, & CZK are flat, AUD & NZD are up 0.15%, and SEK strengthens 0.4% against the USD.

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In commodity markets. Oil prices up 0.15%. Natural Gas, Gold & Wheat prices firmed 0.35%. Silver prices strengthened 1%. Copper prices tumbled 1.4%. Coffee prices rallied 1.5%, and Soybean prices eased 0.1%.

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CAD is stalling below 1.3850 as mixed drivers keep the pair trapped in a narrow range ahead of Wednesday’s BoC and Fed decisions. The Canadian dollar’s recent momentum has cooled after Friday’s strong jobs-driven surge, though firm domestic data and expectations for the BoC to hold rates steady continue to offer support. At the same time, the U.S. dollar is finding a modest bid, aided by caution ahead of the Fed and by President Trump’s renewed tariff threats on Canadian fertilizer, which have limited gains in CAD. With policy divergence still leaning in favour of the loonie but near-term uncertainty elevated, USD/CAD remains biased lower but lacks conviction for a clean break below the 1.3800 area.

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EURCAD is holding firm as the euro benefits from increasingly hawkish ECB rhetoric, while the Canadian dollar consolidates after last week’s strong data-driven gains. With the ECB signalling that its next move could even be a hike and the BoC widely expected to keep policy steady on Wednesday, policy divergence in the near term is tilting modestly in favour of the euro. As a result, EUR/CAD remains supported on dips, with markets awaiting the dual Fed–BoC policy outcomes for additional direction.

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EUR is holding near 1.1650, with price action confined to familiar ranges as traders avoid strong positioning ahead of Wednesday’s Fed decision. Expectations of a 25-bp rate cut continue to underpin the pair, though Monday’s slight uptick in U.S. yields and a firmer dollar tone have kept gains in check. With ADP’s four-week average and the JOLTS reports due later today, short-term volatility is possible. Still, markets are mainly waiting for the Fed’s statement, dot plot, and Powell’s guidance to determine the next directional move.

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GBPEUR is sidelined as both currencies consolidate ahead of key central bank events, leaving the pair without a clear directional catalyst. The euro remains supported by hawkish ECB commentary, while the pound holds firm despite expectations of the BoE easing in early 2026, creating a broadly balanced backdrop. With markets awaiting fresh signals from the Fed, BoE, and ECB speakers, the cross is likely to continue trading in a tight range in the near term.

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GBP is steady in early trading, holding above 1.3300 as markets turn cautious ahead of key U.S. employment data and Wednesday’s Fed decision. While renewed dollar softness offers some intraday support, expectations that the Bank of England will begin easing in early 2026 continue to limit upside for the pound. With traders awaiting fresh guidance from both the Fed and the BoE this week, GBP/USD is likely to remain range-bound until clearer policy signals emerge.