The Morning Update

The USD steadies, oil prices rally, while equity markets and US yields are mixed as the Middle East conflict weighs on sentiment. The U.S. dollar held steady as geopolitical uncertainty kept investors cautious, with reports of ongoing air strikes across the Middle East and Iran tightening its grip on domestic dissent. Conflicting signals about the duration of the conflict and ongoing disruptions to regional security have sustained demand for the greenback as a safe haven, as traders await clearer direction and upcoming U.S. inflation data. Global equity markets were mixed as rising oil prices and escalating tensions in the Middle East weighed on investor sentiment. Asian stocks advanced, while European markets declined and U.S. futures slipped after reports of attacks on vessels in the Strait of Hormuz pushed Brent crude back above $90 a barrel. Investors remain cautious ahead of key U.S. inflation data, with volatility expected to persist as the conflict continues. Elsewhere, oil prices rallied as escalating tensions in the Middle East heightened concerns over potential supply disruptions around the Strait of Hormuz. Meanwhile, Bitcoin slipped below $70,000, and gold prices edged lower as investors adjusted positions amid shifting risk sentiment. Today's focus will be on the US CPI report and updates on the Iran/US war for direction.

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In the news. Air strikes reported across the Middle East, Iran clamps down on dissent. The war in the Middle East costs the regional tourism industry $600 million a day. Israel rejects Lebanon's request for a 'cessation' in fighting to allow for talks. The Kremlin backs a covert campaign to keep Orban in power. Oil-poor Asian countries push for 4-day weeks and carpooling. Trump's mixed messaging sparks wild swings in oil markets. The IEA proposes record release of emergency oil reserves. Three ships hit by projectiles in the Middle East, UK Navy says. LNG Canada ramps up output as Iran war threatens global gas supplies.

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In currency markets. Against the USD, the Australian dollar continued to rally, supported by stronger commodity prices and expectations of higher interest rates from the Reserve Bank of Australia. Meanwhile, the Chinese yuan held steady on stable trade flows, while the South African rand remained under pressure amid risk-averse sentiment toward emerging-market currencies. CNY & Asian currencies are up 0.1% on average against the USD. Trading currencies are mixed, with ZAR weakens 0.5%, CZK & SEK falling 0.25%, MNX, JPY, DKK & PLN easing 0.15%, NZD & KWD flat, CHF & NOK up 0.1%, and AUD strengthens 0.5% against the USD.

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In commodity markets. Oil prices rallied 4%. Natural Gas prices strengthened 1.4%. Gold prices dropped 0.8%. Silver & Coffee prices tumbled 2.5%. Copper prices weakened 1.4%. While Wheat & Soybean prices advanced 1%.

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CAD held steady against the U.S. dollar, supported by still-elevated oil prices, a key export for Canada. Escalating tensions in the U.S.–Iran conflict remain a key driver for markets, particularly due to potential disruptions to energy supplies through the Strait of Hormuz. However, cautious positioning ahead of the U.S. inflation report and upcoming Canadian trade and employment data has limited stronger gains for the loonie.

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EURCAD slipped in early trading as the Canadian dollar found support from strengthening oil prices. The euro remained relatively steady, but elevated energy prices and ongoing Middle East tensions continued to underpin the commodity-linked loonie.

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EUR held steady against the U.S. dollar, remaining above 1.1600 as the greenback stayed sidelined ahead of the U.S. CPI report. Hawkish remarks from ECB officials, including suggestions that the Iran-related energy shock could justify future rate hikes, helped support the euro. However, markets remain cautious as oil prices and developments in the Middle East continue to drive broader currency movements.

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GBPEUR firmed in early trading as the pound found support from a sharp repricing in Bank of England rate expectations following the recent energy shock. Markets have reduced bets on rate cuts and are increasingly pricing the possibility of tighter policy, supporting sterling. However, analysts warn that lingering UK growth concerns and energy-driven inflation risks could limit further gains.

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GBP advanced in early trading against the U.S. dollar, holding near 1.3450 as a softer greenback and easing oil prices supported the pair. Sterling was also underpinned by a sharp repricing of Bank of England policy expectations, with markets shifting from pricing rate cuts to the possibility of a rate hike later this year. Investors are now focused on the upcoming U.S. CPI report for further direction on the dollar and broader currency markets.

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