The Morning Update

The USD extends gains, oil prices strengthen, and equity markets are mixed, with US yields rising amid increasing political anxiety and rate expectations. The USD extends its advance midweek, supported by safe-haven demand as political gridlock in Washington prolongs the government shutdown and fuels investor caution. With no major data releases, markets are focused on upcoming remarks from Federal Reserve officials and the release of the September meeting minutes for clues on future rate cuts. Meanwhile, uncertainty over fiscal negotiations and rising Treasury yields continue to underpin the dollar’s strength against most major currencies. Global equity markets were mixed on Wednesday as investors weighed U.S. political gridlock and fresh turmoil in France. Asian shares slipped while European stocks traded cautiously, with French markets under pressure following the resignation of Prime Minister Sébastien Lecornu and mounting uncertainty over President Macron’s next move. U.S. stock futures were little changed after recent record highs, as traders awaited the release of Federal Reserve meeting minutes for clues on future policy amid a protracted U.S. government shutdown.“A period of consolidation would not come as a surprise after such a strong recent run, but we believe the equity rally is underpinned by solid fundamentals that should continue to support the market,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. Elsewhere, oil prices climbed after OPEC+ signalled a restrained output increase, easing concerns about oversupply, while gold surged past $4,000 per ounce as investors sought safety amid global uncertainty. Bitcoin also advanced, supported by strong demand for alternative assets and growing skepticism toward traditional currencies. Focus will be on today's FOMC minutes and a flurry of Fed speakers to help drive currency market direction today.

‍

In the news. Gold price tops $4,000 for the first time. Trump signals optimism on Canada trade, but offers no concessions. EU pressure builds on Belgium to allow use of Russia's frozen assets. Macron's ally calls on the French President to quit early. Trump's tariffs are expected to cut into global goods trade in 2026, according to the WTO. Hollywood and Bollywood groups lobby the Indian panel to protect content from AI models. UK PM Starmer seeks quick implementation of India trade deal to build business ties. Turkey's gas shift threatens Russia and Iran's last big European market. Federal workers go unpaid, adding pressure to end the government shutdown. Alberta pipeline plan sparks fear and hope among Canada's indigenous groups. Canada's deficit to surge to C$100 billion, NBF's Marion says.

‍

In currency markets. The New Zealand dollar fell after the RBNZ unexpectedly cut rates by 50 basis points to 2.50%, hinting at more easing to support the slowing economy. The yen also weakened as investors adjusted to expectations of fiscal stimulus under Japan’s new leadership and lowered odds of an imminent Bank of Japan rate hike. Meanwhile, the U.S. dollar index gained 1.25% over the past week, buoyed by safe-haven demand amid ongoing global political and economic uncertainty. CNY continues to hold steady, while Asian currencies fell 0.2% on average against the USD. Trading currencies continue under pressure, with JPY & NZD weakened 0.55%, PLN, DKK, CZK, SEK & CHF fell 0.35%, MXN, AUD & NOK eased by 0.25%, and KWD down 0.1% against the USD.

‍

In commodity markets. Oil prices gained 1.3%. Natural Gas prices are flat. Gold prices strengthened by 1.65%. Silver prices rallied 2.4%. Copper and Coffee prices firmed by 0.8%, while Soybean prices are up 0.1% and Wheat prices fell 0.3%.

‍

CAD continues to outperform its peers, holding trading near 1.3950 against the USD, as investors digest a wider-than-expected trade deficit and await tangible progress from talks between Prime Minister Mark Carney and U.S. President Donald Trump. Canada’s trade deficit expanded to C$6.32 billion in August, driven by weaker exports, adding pressure to the loonie despite a modest uptick in oil prices. While Trump promised to “treat Canada fairly,” he remained noncommittal on the USMCA trade deal, instead hinting at the possibility of separate bilateral agreements. The uncertainty surrounding tariffs on key Canadian exports, particularly in the steel and auto sectors, has heightened market caution. Economists warn that without clear progress in trade talks, the Canadian dollar is expected to remain under pressure; however, any breakthrough in U.S.-Canada negotiations could offer near-term support.

‍

EURCAD has fallen nearly 200 basis points over the past week as French political turmoil continues to weigh on the euro. The resignation of Prime Minister Sébastien Lecornu has intensified uncertainty over fiscal policy and investor confidence in France. In contrast, the Canadian dollar remains supported by stronger commodity prices, particularly oil, helping the loonie outperform and push the pair lower.

‍

EURUSD remains under pressure, holding just above the 1.1600 support level after falling nearly 1% over the past week, as investors continue to favour the U.S. dollar amid heightened political uncertainty in France and cautious sentiment ahead of the FOMC. The euro struggled to find support after ECB policymaker Madis Müller said inflation is “where we want it to be,” reinforcing expectations that the central bank will remain on hold. Meanwhile, safe-haven demand for the U.S. dollar persists as the government shutdown drags on and markets await guidance from Federal Reserve officials on the timing of future rate cuts.

‍

GBPEUR holds steady, with the pound maintaining a slight edge as political turmoil in France continues to weigh on the euro. The pair remains supported by relatively stable UK fundamentals, even as investors await further guidance from the Bank of England on the policy outlook. With the euro under renewed pressure from French political uncertainty and cautious ECB commentary, sterling has managed to consolidate recent gains against its European counterpart.

‍

GBP remains under pressure, hovering near 1.3400 against the U.S. dollar (USD) as the greenback extends gains amid safe-haven demand driven by global political uncertainty in France and Japan. While the ongoing U.S. government shutdown is expected to weigh on sentiment, investors are focused on the release of the FOMC minutes, which could offer further insight into the Federal Reserve’s interest rate outlook. At home, traders await remarks from BoE Chief Economist Huw Pill following the central bank’s decision to hold rates at 4%, with officials maintaining a “gradual and careful” approach amid persistent inflation. The BoE Financial Policy Committee noted that households and businesses remain resilient but warned that global market risks and stretched AI-driven equity valuations could trigger volatility. Technically, GBP/USD remains below the 20-day EMA, signalling potential downside toward the 1.3140 level if pressure persists.