The Morning Update

The USD slips, oil prices rally, equity markets are mixed, and US yields rise as markets balance earnings and escalating US-Iran tensions. The U.S. dollar index is edging lower but remains comfortably above the 101 level as investors weigh softer U.S. inflation against persistent geopolitical risks. Comments from U.S. Secretary of State Marco Rubio that Washington will continue to respond forcefully to Iranian aggression, together with ongoing attacks around key Middle East shipping routes, have helped sustain safe-haven demand for the greenback despite expectations the Federal Reserve will leave interest rates unchanged next week. Global equity markets are mixed, with U.S. futures lower as investors turn cautious ahead of Alphabet’s earnings and seek evidence that heavy AI spending is generating returns. Asian tech markets pared earlier gains, European technology shares lagged, and a sharp rise in oil prices above $95 added to inflation concerns and weighed on risk sentiment. Oil hits six week highs on Rubio comments, gold prices firm on safe-haven buying, while Bitcoin prices retreat in early trading. Today sees a light economic calendar, so expect focus to remain on the Middle East to provide intraday direction.

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News Headlines. Oil prices jump 4% as Rubio says Iran 'not serious' about peace talks. European heatwave wiped Euro 2 billion from value of grain crop, analysis estimates. OpenAI admits an AI 'agent' caused a major cyber breach by itself. Canada isn't listening to American whining in the wine wars. Burnham backs away from costly increase to income tax allowance. The war in Iran has cost the US $37.5 billion so far, Pentagon says. Tankers with Saudi crude turn back as Houthis open new front in US-Iran war. From keeping booze boycotts to withholding energy, premiers talk hot to hit back at Trump.

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In currency markets. Against the USD, the Japanese yen is edging higher after reports the Bank of Japan remains alert to upside inflation risks and could raise interest rates faster than markets expect if a weak yen and rising import costs accelerate price pressures. While the BOJ is widely expected to leave rates unchanged next week, policymakers are signalling that September or October meetings could become live if inflation continues to surprise on the upside.

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In commodity markets. WTI +4.36% | Nat Gas +0.56% | Gold +1.05% | Silver +0.91% | Copper -0.43% | Palladium +1.48% | Coffee -0.56% | Cocoa -0.03% | Soybeans +0.20% | Wheat +0.95%

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CAD is steady in early trading, holding near a one-week low as renewed U.S. tariff threats and softer Canadian inflation have reduced expectations for further Bank of Canada rate hikes. Wider Canada-U.S. bond yield spreads and ongoing policy uncertainty continue to weigh on the loonie, although firmer oil prices are helping to limit the downside.

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EURCAD is trading broadly flat despite stronger oil prices, as expectations that both the ECB and Bank of Canada will keep rates unchanged in the near term offset support for the commodity-linked Canadian dollar. Investors are now looking to Thursday's ECB meeting for guidance on whether policymakers leave the door open to a September rate hike.

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EUR is holding steady above 1.1400 as expectations the ECB will maintain a hawkish tone at Thursday's policy meeting continue to support the single currency. With a light economic calendar today, markets are likely to remain sidelined ahead of Thursday's ECB decision, while ongoing Middle East tensions and higher oil prices continue to underpin the U.S. dollar and limit further gains in the euro.

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GBPEUR continues to drift lower amid softer UK inflation and easing wage growth, which have reduced expectations for further Bank of England rate hikes, while renewed concerns over the UK's fiscal outlook under Prime Minister Andy Burnham continue to weigh on sterling. With a light economic calendar today, investors are likely to remain cautious ahead of Thursday's ECB policy decision.

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GBP is slipping after UK inflation cooled more than expected in June, reinforcing expectations that the Bank of England will keep interest rates unchanged in the near term. Rabobank also warns that the UK's low savings rate, large current account deficit and heightened sensitivity to fiscal concerns could leave sterling vulnerable until the government provides greater clarity on its fiscal plans.