The Morning Update

The USD is flat, oil prices continue to weaken, equity markets are up, and US yields are down as markets weigh the US-Iran peace deal. The U.S. dollar traded broadly flat in early trading as investors balanced improving risk sentiment following the U.S.-Iran peace agreement against caution ahead of Wednesday's Federal Reserve interest rate decision. Markets continue to expect the Fed to leave rates unchanged, with attention focused on updated economic forecasts and guidance on the future path of monetary policy. Easing energy prices have also helped temper inflation concerns, leaving the greenback largely range-bound for now. Global equity markets were little changed in early trading after a strong three-day rally, as investors adopted a more cautious stance ahead of a busy week of central bank decisions. Market attention is firmly focused on Wednesday's Federal Reserve meeting, while policy announcements from the Bank of England and Bank of Japan are also expected to influence sentiment. Technology shares remained supported, although broader gains were tempered by uncertainty about the global interest-rate outlook. Elsewhere, oil prices remained under pressure as expectations of increased energy supplies from the Middle East continued to weigh on crude markets. Gold and bitcoin prices were broadly steady as investors awaited this week's key central bank decisions and further direction on the global interest rate outlook. Today sees a light economic calendar, with focus on US Building Permits and Housing Starts; ECB's Lane & Sleijpen speeches will help provide direction to currency markets ahead of tomorrow's key US interest rate decision.

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News Headlines. US-Iran deal must be 'material' for Strait of Hormuz to reopen, tanker giant warns. Bank of Japan raises rates to 1% for the first time since 1995. JPMorgan plans Chase expansion into Europe's largest market. OpenAI spending hit $34bn last year ahead of planned IPO. Trump administration considers $300bn fund for Iran if deal is upheld. Central banks repatriate gold as global insecurity rises. Chinese economy stalls as spending and investment drop to Covid-era levels. German investor outlook jumps with Iran resolution in sight. Canada home sales jump 5.5% in May; prices dip. Canada envoy to US says discussion on USMCA have been productive.

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In currency markets. Against the U.S. dollar, the Japanese yen traded broadly flat after the Bank of Japan raised interest rates by 25 basis points to 1.0%, its highest level since 1995. While the move was widely expected, policymakers signalled a gradual approach to further tightening despite persistent inflation risks, limiting support for the yen. Investor focus now turns to Wednesday's Federal Reserve interest rate decision, with the outlook for U.S. policy expected to remain the key driver for USD/JPY.

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In commentary markets. Oil prices tumble 2.3%. Natural Gas prices rallied 1.5%. Gold & Silver prices gained by 0.4%. Coffee prices eased 0.4%. Copper prices are flat. Soybean prices retreated 0.8%, and Wheat prices slipped 0.2%.

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CAD continues under pressure in early trading, with the loonie testing above 1.4000 despite an improvement in global risk sentiment following the preliminary U.S.-Iran peace agreement. Softer oil prices, uncertainty surrounding the upcoming USMCA review, and elevated speculative bearish positioning continue to weigh on the loonie. Investor attention is also firmly on this week's Federal Reserve policy decision, with expectations of a hawkish outlook expected to limit any meaningful recovery in the Canadian dollar.

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EURCAD continued to push higher in early trading, testing the 1.6250 level as the euro remained supported by the ECB's recent rate hike and expectations that policymakers will retain a tightening bias, while the Canadian dollar stayed under pressure from weaker oil prices, USMCA uncertainty and a cautious Bank of Canada outlook. The move has lifted the cross to its highest level in around five months, with EUR/CAD last trading above 1.6250 in late January when it peaked near 1.6330.

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‍EUR holds steady around 1.1600 against the U.S. dollar in early trading as investors remained cautious ahead of Wednesday's Federal Reserve interest rate decision. The single currency continues to draw support from the ECB's recent rate hike and expectations of further policy tightening if inflation remains elevated. Markets are also cautiously monitoring developments surrounding the U.S.-Iran peace agreement, although the Fed meeting is expected to be the primary driver for currency markets this week.

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GBPEUR traded broadly flat in early trading as support from the ECB's recent rate hike and expectations of further tightening continued to underpin the euro. Investors are also looking ahead to this week's Bank of England and Federal Reserve policy decisions for fresh direction.

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GBP traded broadly sideways against the U.S. dollar in early trading as investors remained on the sidelines ahead of key central bank meetings and further developments surrounding the U.S.-Iran peace agreement. Market attention is firmly focused on Wednesday's Federal Reserve interest rate decision and Thursday's Bank of England meeting, with both expected to provide important guidance on the outlook for interest rates.