The USD continues to weaken, oil prices strengthen, equity markets are down, and US yields rise on US fiscal fears. The USD remains under selling pressure due to Fed comments and Trump's proposed tax cuts, which could worsen the debt load by $3 trillion to $5 trillion. European equities came under fresh selling pressure as risk sentiment remains muted after Moody's downgraded the US credit rating last week. Geopolitical tensions are also adding fresh headwinds to markets, as investors continue to fear that US tariff policies could still damage the global economy. On Wednesday, data showed that Japanese shipments to the US fell in April even as exports rose for a seventh straight month, highlighting the toll that the US tariffs had on Japan's fragile economic recovery. Elsewhere, oil prices rose on Middle East supply fears, while yields on 30-year US Treasuries rose above the 5% mark, and Bitcoin slipped in early trading. In focus today, the G7 Finance Minister 3 3-day meeting in Canada. ECB Lane, and Fed's Barkin & Bowman speeches will help provide direction to currency markets today.
In the news. Oil climbs on reports that Israel is preparing to strike Iran. Inflation rockets in April, Reeves is 'disappointed' by the data. Trump pressures Republicans to pass 'big beautiful tax bill. IMF urges the US to curb deficit as Trump tax cut plan stirs debt fears. New Zealand's 'golden visa' applications surge under looser rules. UK & EU ratchet up pressure on Israel over Gaza offensive. Canada Post workers could hit the picket line as early as Friday, the union says. S&P 500 futures are little changed after benchmark snaps six-day win streak. G7 countries discuss tariffs on low-value Chinese products. Meloni angers Italian Americans with tighter citizenship rules. UK house prices rose by the most since 2022 in March.
In currency markets. Morgan Stanley expects the USD to remain under pressure due to "a convergence in US rates and growth to peers." The USD continues under pressure after President Trump failed to convince Republican holdouts to back his sweeping tax bill. Japanese Finance Minister said ahead of an expected meeting with the US Treasury Secretary that talks on exchange rates would be based on their shared view that excessive currency volatility is undesirable. CNY firms by 0.2%, and other Asian currencies gained by 0.3% against the USD on average. Trading currencies rebound. with NZD & ZAR flat, JPY, AUD, NZD & PLN up 0.2%, DKK firmed 0.3%, and NOK & ZEK strengthened by 0.75%.
In commodity markets. Oil prices rallied 1.25%. Natural Gas prices tumbled by 1.4%. Gold prices strengthened by 0.8%. Silver and Soybean prices firmed by 0.45%, while Wheat and Copper prices gained by 0.2%.
CAD extends gains through 1.3900, supported by ongoing US weakness and momentum from Tuesday's higher-than-expected Canadian core inflation levels in April. Tuesday's CPI report showed the annual inflation rate fell to 1.7%, while the ex-food and energy inflation levels, as the tariff impact is starting to show up. "Ex-food and energy was probably a bit hotter than expected," said Darcy Briggs, a portfolio manager at Franklin Templeton Canada. "I think it would give the Bank of Canada a chance to pause even further." The Canadian overnight index swaps market was pricing in a 33% chance of an interest rate cut at the next BoC policy decision on June 4, down from 65% previously.
EURCAD continues to advance amid cautious ECB policymakers' comments, and as investors continue to favour the EU over Canada amid the ongoing US trade war.
EUR extends to fresh weekly highs against the US dollar amid increasing US dollar weakness. The euro retests 1.1350 amid sustained USD weakness following last week's Moody's downgrading, rising concerns about ballooning US debt, and the failure of the US to pass Trump's tax bill. Domestically, ECB Governing Council member Klot said on Tuesday that the medium-term inflation outlook is too uncertain to say whether the ECB needs to cut key rates again in June. Intraday, with the lack of any high-tier economic releases, investors will be focused on ECB Lane and Fed speakers to help provide direction to currency markets.
GBPEUR weakens in early trading despite the increasing prospect of an ECB rate cut in June, while rising inflation levels in the UK could create challenges for the BoE.
GBP sees initial strengthening stalls as an increasingly softer risk tone caps the pound's gains. The UK Office for National Statistics reported that the annual inflation in the UK climbed to 3.5% in April from 2.6% in March. April's inflation level was above market expectations and decreased the BoE's probability of cutting rates in June down to 45% from 60% prior to the data. Focus has shifted to tomorrow's UK and the US PMI reports to give further guidance on the direction of the Fed and the BoE in June.
Payments International Inc., payment and foreign currency exchange services are provided by Ebury Partners Canada Limited. Payments International Inc. is partnered with Ebury Partners Canada Limited as a Programme Manager. "Ebury Partners Canada is registered as Money Services Business (“MSB”) with the Financial Transactions and Reports Analysis Centre (“FINTRAC”) (Reg. No.: M17949017) and licensed as an MSB with the Authorité des Marchés Financiers (“AMF”) (Licence No. 904066)".
