The Morning Update

The USD slips, oil prices are steady, equity markets are down, and US yields rise after fresh US-Iran strikes. The U.S. dollar steadied in early trading as investors assessed the impact of fresh U.S. and Iranian military strikes, which have raised doubts about the durability of recent ceasefire efforts and any near-term diplomatic breakthrough. While renewed tensions in the Middle East continue to underpin safe-haven demand for the greenback, expectations of higher U.S. interest rates following strong recent economic data are also providing support. Global equity markets traded lower in early trading as renewed U.S.-Iran hostilities and escalating geopolitical tensions weighed on investor sentiment. Asian markets led declines, with technology shares under pressure, while European equities also slipped as investors balanced Middle East risks against upcoming U.S. inflation data and central bank policy decisions. Concerns about stretched AI-sector valuations and the potential for higher interest rates continued to add to the cautious mood across global markets. Elsewhere, oil prices held relatively steady as traders balanced ongoing Middle East supply risks against expectations of stable global demand. Gold prices eased as safe-haven demand softened, while bitcoin weakened amid a broader pullback in risk assets and continued profit-taking in cryptocurrency markets. Focus today will be on the US CPI inflation report and the BoC interest rate decision, which will provide intraday direction.

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News Headlines. US and Iran exchange strikes after the downing of an American helicopter. Oil slides as a US official says Hormuz transits are 'meaningfully' climbing. Wild temperature swings are becoming the 'new normal'. EU agency says. Ukraine builds cheap alternative to Patriot missiles. Belfast braced for more racially motivated riots after families evacuated. BYD to spend Euro 2bn to build out 5-minute flash chargers in Europe. NASDAQ slips in volatile trading as 2026 high-flyers pull back. China factory gate prices rise at fastest rate in 4 years. Canada confirms opening of Gordie Howe Bridge, despite Trump's threats.

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In currency markets. Against the U.S. dollar, currency markets were mixed in early trading as investors remained cautious ahead of today's U.S. inflation report and next week's Federal Reserve interest rate decision. While the euro and pound edged higher, the yen remained under pressure near intervention territory. Strong U.S. economic data and expectations of higher-for-longer interest rates continued to underpin the broader dollar outlook.

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In commodity markets. Oil prices are flat. Natural Gas & Soybean prices are up 0.3%. Gold prices tumbled 2.4%. Silver prices weakened 1.5%. Copper prices retreated 1.2%. Coffee prices advanced 0.9%, and wheat prices rallied 1.7%.

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CAD firmed towards 1.3900 in early trading, supported by a softer U.S. dollar and stronger-than-expected trade data, which showed Canada's trade surplus widening to a 15-month high in April. However, gains are likely to remain limited as investors await Wednesday's Bank of Canada interest rate decision, where policymakers are widely expected to leave rates unchanged at 2.25%. Ongoing uncertainty surrounding CUSMA negotiations and slowing domestic growth continue to weigh on the broader outlook for the loonie.

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EURCAD held steady around 1.6100 in early trading as markets looked ahead to this week's key ECB and Bank of Canada interest rate decisions. The euro remains supported by expectations of an ECB rate hike on Thursday, while the BoC is widely expected to leave rates unchanged on Wednesday. As a result, the cross continues to trade near multi-month highs.

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EUR held steady near 1.1550 in early trading as investors looked ahead to today's U.S. inflation report, which is expected to provide fresh clues on the Federal Reserve's interest rate outlook. The single currency also remained supported by expectations that the ECB will raise interest rates at Thursday's policy meeting, reinforcing the divergence between Eurozone and U.S. monetary policy expectations. However, renewed tensions between the U.S. and Iran and lingering demand for the U.S. dollar are limiting further gains for the euro.

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GBPEUR traded broadly flat in early trading as markets looked ahead to Thursday's ECB interest rate decision, where a 25 basis point rate hike is widely expected. The euro remained supported by tightening expectations, while sterling found support from markets still pricing in the possibility of a Bank of England rate increase later this year. Investors are also awaiting Friday's UK GDP data for further clues on the BoE's policy outlook.

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GBP traded near 1.3400 against the U.S. dollar in early trading as investors awaited today's key U.S. inflation report for fresh clues on the Federal Reserve's policy outlook. Ongoing tensions between the U.S. and Iran continued to support safe-haven demand for the dollar, while expectations for higher U.S. interest rates also capped gains in sterling. Markets will also remain alert to UK political developments and their potential impact on the pound.