The Morning Update

The USD holds steady, oil continues to weaken, equity markets are higher, and US yields are mixed amid AI gains and the upcoming Xi-Trump summit. The USD held steady near recent highs as investors continued to price in further Federal Reserve tightening following last week’s rate hike, with several Fed officials reinforcing that inflation remains too elevated. Attention is also turning to the Trump-Xi summit later this week, while easing oil prices and tentative progress on Middle East diplomacy have reduced some of the recent inflation and safe-haven pressures. Global equity markets were broadly steady after yesterday’s strong technology-led rally, with U.S. futures little changed as investors consolidated gains that lifted the S&P 500 to a one-month high. AI and semiconductor shares remain the main source of support, while lower oil prices and easing bond yields have improved the broader backdrop for risk assets, even as investors remain cautious ahead of the Trump-Xi summit later this week. Elsewhere, oil prices continued to tumble as hopes for progress toward reopening the Strait of Hormuz eased supply concerns and pushed crude to multi-week lows. Gold edged lower as safe-haven demand softened, while bitcoin also eased after its recent rally as traders took profits and broader risk assets consolidated. Today’s economic calendar includes the U.S. ADP Employment Change weekly update, Eurozone preliminary Consumer Confidence, alongside speeches from Fed officials John Williams, Philip Jefferson and Thomas Barkin.

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News headlines. Trump & Xi seek trade stability and deals as AI, tariffs and Iran loom large. US Treasury yields ease as investors await fresh jobs data and Fed comments. Trump says Russia has 'lost control' of diesel oil ahead of Zelensky meeting. The US, Greenland and Denmark to sign deal in a bid to end Arctic standoff. Kremlin-backed forgery scheme moved $6.9bn through global banks. Merz's woes cast doubt over EU's EUR 2 trillion budget deal. Canada says Philippines & ASEAN trade talks 90% complete, eyes November finish. Canada aims to cut time needed for project reviews and address strikes. Gulf states urge reset with Iran as conflict drags on.

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In currency markets. Against the USD, most major currencies remained relatively subdued, but NZD was a notable outperformer, helped by comments from RBNZ Governor Breman that persistent oil strength could keep inflation firmer and by expectations for another rate hike in October.  By contrast, petro-linked currencies remained under pressure as crude prices fell sharply on improving Middle East supply expectations, while the broader dollar stayed supported by expectations for further Fed tightening.

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In commodity markets. WTI -2.61% | Nat Gas -0.11% | Gold -0.38% | Silver -0.48% | Copper +1.20% | Palladium -1.17% | Coffee -0.34% | Cocoa -2.80% | Soybeans -0.58% | Wheat -1.31%

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CAD remains under pressure near multi-week lows, with tumbling oil prices, wider U.S.-Canada yield spreads and ongoing trade uncertainty weighing on the loonie. Governor Macklem’s comments on Monday kept the door open to further tightening but struck a more cautious tone on growth risks, prompting markets to trim the probability of an October rate hike slightly from pre-speech levels. Expectations for further BoC tightening therefore remain in place, but the balance of risks has shifted somewhat toward patience.

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EURCAD was steady in early trading, with softer CAD sentiment offset by a euro still capped by political uncertainty in Germany following recent regional election setbacks for Chancellor Merz’s CDU. With commodity markets under pressure, continued weakness in oil and other key Canadian exports should provide some underlying support for the currency pair.

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‍EUR edged off fresh seven-week lows near 1.1434 but remains under pressure as political uncertainty in Germany and renewed concerns over France’s fiscal outlook weigh on sentiment. Rising U.S. yields and expectations of a more prolonged Fed tightening cycle are also limiting any meaningful recovery, while attention remains on President Lagarde for guidance on whether the ECB is prepared to tighten further.

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GBPEUR was broadly unchanged in early trading, with the cross holding near 1.1660–1.1670 as political uncertainty in Germany continued to weigh on the euro while the pound remained supported by expectations that the Bank of England may still tighten again if inflation pressures persist. With neither side gaining a clear advantage, attention is shifting to upcoming UK and Eurozone PMI data for the next directional catalyst.

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GBP was broadly steady above 1.3350 as markets balanced easing energy-price pressures against renewed concerns over the UK fiscal outlook after public-sector borrowing rose to £18.3 billion in August, the second-highest August figure on record and the largest outside the pandemic period. Lower oil prices could reduce some pressure on the Bank of England to tighten aggressively, although markets still expect at least one further hike this year. With fiscal headroom looking increasingly limited ahead of next month’s budget, sterling remains vulnerable despite recent resilience.

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