The Morning Update

The USD eases, oil prices are steady, equity markets are up, and US yields are mixed with a cautious risk-on sentiment. The USD slips in early trading, while G10 currencies hold steady and the AUD weakens after the RBA cuts interest rates by 0.25 bps to their lowest level in two years. Global equities edge higher, while US futures slip as investors process Monday's US Treasury sell-off on US debt concerns and increasing recession fears for the world's biggest economy. As they confronted a murky economic outlook, Fed officials signalled that US interest rates would likely stay on hold until at least September. "It's not going to be that in June we're going to understand what's happening here, or in July," Fed Williams said on Monday. "It's going to be a process of collecting data and watching things as they develop." Elsewhere, oil prices are steady amid uncertainty on the US/Iran nuclear deal, and Bitcoin, Gold, and Silver prices hold static. In focus today, the CAD inflation report, Fed's Musalem, Kugler and Barkin speeches, EU Consumer Confidence, and Home Depot earnings will help provide intraday direction to currency markets.

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In other news. Dimon warns that markets are underestimating geopolitical and inflation risks. France, the UK, and Canada call on Israel to allow more aid to Gaza. Canada says most tariffs on the US remain, pushing back on the Oxford report. Chinese battery maker CATL surges 16% in the biggest listing of 2025. Trump leaves Russia and Ukraine to settle the war in talks. Trump's 'big, beautiful' tax bill heightens concerns over US debt. Japan's long-term borrowing costs hit a record high due to demand fears. China's Xi steps up calls for industrial self-sufficiency amid trade war. Israel risks becoming 'pariah state' over Gaza, says opposition leader.

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In currency markets. The USD continues under pressure after Moody's downgrade over deficit concerns and the Fed's economic caution last week. AUD weakened after the RBA cut rates, as its statement did not indicate that it is considering pausing or ending the interest rate cycle. CNY dips 0.1%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with AUD weakening 0.6%, NZD easing 0.2%, CZK & KWD flat, MXN, DKK & CHF up 0.2%, NOK, and SEK & JPY gaining 0.3% against the USD.

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In commodity markets. Oil, Gold, Silver and Soybean prices are flat. Natural Gas and Wheat prices rallied 1.6%, and Copper prices tumbled 0.8%.

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CAD firmed in early trading towards 1.3900 amid a softening USD as investors await the CAD inflation report. Markets expect the Consumer Price Index year-over-year in April to drop to 1.6% from 2.3% in March. If today's CPI supports easing inflation levels, investors expect the Bank of Canada to cut interest rates in June to 2.5%, following last week's employment data, which showed just 7,400 jobs were added in April. We expect the USD to find support at 1.3900 if CAD inflation levels ease, with the prospect of widening interest rate divergence between the BoC and the Fed.

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EURCAD holds steady amid flat oil prices and caution ahead of the CAD inflation report.

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EUR straddles 1.1250 ahead of Fed speakers and the EU consumer confidence report. The single currency has held on to Monday's gains on renewed US dollar weakness on fiscal and economic concerns and ongoing US tariff concerns. With the absence of any high-tier, the focus will be on a flurry of Fed speakers after comments on Monday from Fed's Williams cautioning of possibly just one rate cut, which is expected at the end of summer vs June as initially expected. Alongside Fed speakers, the focus will also be on EU consumer confidence, which is expected to improve slightly in May.

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GBPEUR is static in quiet trading without high-tier EU or UK economic releases, with investors focused on Wednesday's UK inflation report.

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GBP holds on to gains amid a softening USD and expanded trade deals. The pound edged higher on renewed USD selling pressure as US debt and tariff uncertainty increase fears of a US recession. Domestically, BoE Chief Economist Pill said that the quarterly pace of rate reductions would be "too rapid," adding that he is concerned about indicators pointing to inflation pressure. The UK and EU agreed on a trade and security deal, the first agreement since Brexit. Chancellor Reeves told the BBC that following trade deals with the US and EU, the UK will focus on the Gulf pact for the next round of trade deals. Intraday, investors will be focused on Fed comments to help guide the pound today.