The Morning Update

The USD holds steady, oil prices slip, while equity markets and US yields are mixed as risk sentiment eases. The US Dollar Index is holding steady below 98.00, with limited direction amid a light economic calendar. Market focus remains firmly on geopolitical tensions and ongoing tariff uncertainty, keeping USD flows driven more by risk sentiment and policy headlines than by macro data. Global equities are attempting a tentative recovery, with US futures modestly higher while Asian and European markets trade mixed following the recent AI-driven selloff. Investor sentiment remains fragile as concerns over artificial intelligence disruption combine with renewed trade uncertainty and geopolitical tensions, limiting conviction behind the rebound. With Trump’s State of the Union address and Nvidia’s earnings ahead, markets remain cautious as participants weigh policy risks alongside structural shifts in the tech sector. Elsewhere, oil and gold prices have edged lower amid easing commodity markets, subdued demand, and cautious risk sentiment. Meanwhile, Bitcoin remains under pressure, breaking below the $63,500 level as investors continue to scale back exposure to higher-beta assets. Today's focus will be on the US ADP Employment Change 4-week average, the US Consumer Confidence, alongside a flurry of Fed speakers, which will help provide direction to currency markets intraday.

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In the news. Zelensky says the war in Ukraine is at the 'beginning of the end'. Trump's global tariff takes effect at 10%. European leaders gather in Kyiv as the US hangs back. Home Depot beats Wall Street's expectations, even as sales decline. Moody's alert cites gaps in data centre accounting for Big Tech companies. Europe's tech sovereignty' ambitions carry security risks, the military warns. Takaichi plans Japanese 'Cfius' to tighten economic security. Iran nears a deal to buy supersonic anti-ship missiles from China. Trump, facing headwinds at home and abroad, is to address the State of the Union.  WestJet & Air Canada among airlines resuming service to Mexico.

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In currency markets. Against the US dollar, the Japanese yen weakened toward the 156 level after reports that Prime Minister Takaichi expressed reservations about further BOJ rate hikes, dampening tightening expectations and weighing on yields. In contrast, China’s yuan strengthened to its firmest level in nearly three years, supported by optimism that the latest US tariff measures may result in relatively lighter trade pressure on Chinese exports. CNY strengthens 0.45%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY tumbled 0.8%, KWD eased 0.2%, AUD, MXN, DKK, CZK & PLN down 0.1%, NZD flat, NOK up 0.1%, and ZAR firmed 0.2% against the USD.

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In commodity markets. Oil & Soybean prices slip 0.1%. Natural Gas prices tumbled 1.35%. Gold & Coffee eased 0.55%. Silver & Copper prices rallied 1.5%, while Wheat prices firmed 0.2%.

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CAD continues to straddle the 1.3700 level as US tariff uncertainty keeps investor sentiment cautious, though price action remains confined to a narrow recent range. With speculators increasing bullish CAD positioning and oil prices slightly softer, attention now turns to Friday’s Canadian GDP data for clearer directional cues, while broader USD moves and geopolitical developments remain key drivers in the interim.

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EURCAD holds steady in early trading, with the cross retaining a mild bid as the euro draws support from the European Parliament’s decision to pause ratification of the US-EU trade deal following the Supreme Court’s move to strike down several of Trump’s second-term tariffs, leaving EUR/CAD driven largely by relative policy headlines and broader risk sentiment.

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EUR remains capped at 1.1800 in early European trade, pressured by modest US dollar strength as safe-haven flows re-emerge despite lingering tariff uncertainty. With little in the way of fresh eurozone catalysts, focus shifts to upcoming US consumer confidence, ADP data and a slate of Fed speakers, which could reinforce the greenback if policymakers signal caution on rate cuts amid trade-driven inflation risks.

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GBPEUR edges higher in early trade as sterling traders look ahead to parliamentary testimony from key Bank of England policymakers, which could shape expectations for a March rate cut. With markets already pricing an 80% chance of a 25bp move, any signal from Governor Bailey that easing is imminent could reinforce rate-cut bets and influence the near-term direction of the cross.

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GBP holds steady but remains capped near the 1.3500 level against the US dollar as the greenback firms ahead of key US data releases. Softer UK labour market figures, including rising unemployment and moderating wage growth, have reinforced expectations for a March BoE rate cut, adding further pressure on sterling. Attention now turns to US ADP employment, consumer confidence and Fed commentary for fresh directional cues.