The Morning Update

The USD steadies, oil prices are flat, equity markets are mixed, and US yields are up as markets await a deluge of US data this week. The U.S. dollar traded largely flat as investors stayed on the sidelines ahead of key retail sales data. Markets are cautious, viewing the consumer spending figures as a crucial gauge of economic momentum and the Federal Reserve’s policy outlook. Global equities were mixed, with U.S. futures and Asian markets edging higher while European stocks showed a more uneven performance as investors grew cautious ahead of a heavy U.S. data calendar. The recent rally has lost momentum after pushing the S&P 500 close to record highs, with traders reluctant to add risk before retail sales, payrolls and inflation releases. Overall sentiment remains constructive but guarded, with markets increasingly driven by interest-rate expectations rather than corporate earnings. Elsewhere, gold and oil prices traded largely flat, reflecting a pause in broader risk-taking across markets. In contrast, Bitcoin remained under selling pressure, testing support around the $68,500 level. In focus today, US Retail Sales, and ADP Employment change 4-week average, will drive currency market direction today.

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In the news. EU-US tensions over Greenland and tech are far from over, says Macron. US lawmakers call on Howard Lutnick to step down over ties to Epstein. Record Arctic January sea temperatures heighten security risks. Investors pour billions into Europe's AI and defence start-up. Chinese luxury group Icicle plots IPO as non-western labels shine. Trump threatens to block opening a new bridge between Windsor and Detroit. Estonia says Russia planning military buildup to shift power in Europe. Starmer refuses to heed calls to quit over fallout from Epstein scandal. Trump says Fed pick Warsh can get the economy to hit 15% growth. CVS tops quarterly estimates, reaffirms profit outlook as turnaround plan takes effect.

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In currency markets. Against the U.S. dollar, the yen extended gains on safe-haven demand and continued confidence in Japan’s policy outlook, while the Norwegian krone strengthened alongside firmer risk sentiment and support from the energy sector. In Asia, the yuan surged to its strongest level since May 2023 after China asked banks to limit holdings of U.S. Treasuries. The development reinforced expectations of diversification away from the dollar and increased the prospect of capital being repatriated into Chinese assets. CNY & Asian currencies on average firmed 0.15%, against the USD. Trading currencies are mixed, AUD, NZD, PLN, CZK, ZAR, & KWD are down 0.1%. MXN, SEK & DKK are flat, CHF up 0.1%, while JPY & NOK rallied 0.6% against the USD.

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In commodity markets. Oil prices firmed 0.2%. Natural Gas & Copper prices weakened 1%. Gold & Soybean prices are flat. Silver eased 0.7%. Coffee prices rallied 1.3%, and Wheat prices fell 0.35%.

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CAD holds firm after climbing to a 10-day high on Monday, supported by resilient labour market data and broad U.S. dollar weakness, with speculative positioning turning net-long for the first time in over two years. The loonie briefly touched 1.3560 per U.S. dollar as higher oil prices and reduced expectations for further Bank of Canada rate cuts underpinned sentiment. Attention now turns to U.S. retail sales, which could set the near-term tone for USD/CAD.

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EURCAD traded flat as support from improving Eurozone sentiment and steady ECB messaging was offset by resilience in the Canadian dollar following firm labour data and supportive oil prices. With both currencies underpinned by domestic factors, the cross lacked a clear catalyst and remained range-bound.

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EUR eased toward the 1.1900 area in European trading as investors turned cautious ahead of key U.S. data, including retail sales and upcoming employment reports. The U.S. dollar stabilized after heavy losses earlier in the week, with Treasury yields holding near 4.2% as markets reassessed the impact of China’s comments on Treasuries. In Europe, ECB President Christine Lagarde reiterated confidence that inflation will return to the 2% target over the medium term, reinforcing expectations for a steady policy stance. With retail sales due later in the session and payrolls later this week, traders remain reluctant to extend positions, leaving the pair consolidating near recent highs.

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GBPEUR edged lower in early trading as sterling remained under pressure, allowing the euro to extend gains for a second straight session. Ongoing political turmoil in the UK, centred on the Mandelson scandal and rising uncertainty around Prime Minister Keir Starmer’s leadership continues to weigh heavily on the pound.

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GBP edged lower against the dollar, trading below 1.3700 with ongoing UK political uncertainty and rising expectations of a March Bank of England rate cut. Sterling’s losses have been partly contained by signs of cabinet support for Prime Minister Keir Starmer, easing fears of an immediate leadership challenge. Markets now look to U.S. retail sales and upcoming labor and inflation data for near-term direction.