The Morning Update

The USD extends gains, oil prices ease, equity markets are up, and US yields are mixed as markets end the last full week of trading in 2025. The U.S. dollar has been firm in early trading as the Bank of Japan raised its policy rate to around 0.75%, the highest in nearly 30 years, yet the Japanese yen weakened sharply, pushing USD/JPY up towards the 157.50 area. The BoJ’s move reflects a shift from decades of ultra-loose policy but has done little to halt yen depreciation against the dollar, partly amid broader market flows and yield dynamics. Markets continue to watch how the BoJ’s tightening cycle will play out relative to global monetary conditions, including U.S. rate expectations. Global equities ticked higher as investors looked ahead to a seasonally supportive year-end period, with U.S. stock futures rising after recent gains. Asian and European markets were mixed after the Bank of Japan’s rate hike, with higher global bond yields adding some caution to risk sentiment. Despite lingering volatility and concerns around stretched valuations, investors remain hopeful for further upside if fresh catalysts emerge. Elsewhere, oil and gold prices slipped as higher global yields and a firmer dollar weighed on commodities. In contrast, Bitcoin rallied nearly 4%, breaking above $88,000 as risk appetite improved and buyers returned to digital assets. In focus today, CAD Retail Sales, EU Consumer Confidence, US Existing Home Sales, Michigan Consumer Sentiment & Expectations Index, and UoM 1- and 5-year Consumer Inflation Expectation, will help drive direction to currency markets.

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In the news. The EU agrees to a €90 billion loan to Ukraine after a plan to freeze Russian assets fails. France will not agree on the budget by year-end, says the prime minister. China is blamed for the UK government's cyberattack. Trump suspends the U.S. Green Card lottery after Brown-MIT attacks. US Treasuries head for their first weekly gain since November. PM Carney says sector deals with the US now 'unlikely' as USMCA talks loom. Canada and Ontario ink deal to ban regulatory duplication on major projects. The Bank of Japan raises rates to 30 30-year high, and signals more hikes. The UK posts a bigger-than-expected budget deficit in November.

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In currency markets. The yen fell after the Bank of Japan raised rates as expected but offered little clarity on the timing and pace of further tightening, prompting traders to sell the currency on the fact. The euro held steady against the dollar but remained weighed down after ECB President Lagarde avoided giving forward guidance, while sterling was little changed following a closer-than-expected BoE rate cut. Overall, currency markets were driven by uncertainty over future central bank paths, with the dollar firming modestly as investors digested mixed policy signals. CNY is flat, SGD slips 0.2%, while INR rallied 0.7% against the USD. Trading currencies come under pressure, with JPY tumbling 1.1%, NZD weakening 0.5%, PLN, ZAR, SEK, & NOK falling 0.3%, MXN & CHF easing 0.2%, and KWD, AUD & CZK down 0.1% against the USD.

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In commodity markets. Oil, Wheat, Soybean and Gold prices slipping 0.1%. Natural Gas & Copper prices are strengthening 0.75%. Silver prices are rallying 1.2%, and Coffee prices are gaining 0.45%.

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CAD hovered near 1.3800 as a firmer U.S. dollar and caution ahead of domestic retail sales limited gains. Investors are watching Friday’s Canadian retail sales data closely for evidence that household consumption is improving after recent GDP growth was driven by weaker imports rather than stronger demand. Ongoing trade uncertainty with the United States continues to weigh on sentiment toward the loonie. Focus also remains on upcoming U.S. economic releases, which could influence dollar direction and add volatility to USD/CAD.

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EURCAD is trading flat as markets digest mixed signals from both sides, with limited follow-through after recent volatility. Canadian retail sales are in focus for fresh direction, though ongoing trade concerns continue to weigh on the loonie. On the euro side, the ECB’s steady policy stance and lack of forward guidance are keeping the single currency range-bound against the Canadian dollar.

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EUR eases toward 1.1700 as the U.S. dollar finds fresh demand, with investors looking past softer U.S. inflation data amid a cautious risk backdrop. The euro remains capped after the ECB left rates unchanged and avoided forward guidance, though upgraded growth projections and expectations of Fed–ECB policy divergence are helping limit deeper losses. Trading conditions remain subdued ahead of the weekend, with sentiment sensitive to risk appetite and end-of-year flows.

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GBPEUR is holding steady near 1.1430 after the Bank of England cut rates by 25 basis points to 3.75% and signalled that any further easing will be data-dependent. Sterling found some support as the decision was more closely split than expected, while the ECB kept policy unchanged and indicated rates are in a “good place” for an extended period. With policy divergence largely priced in, the pair remains range-bound as investors await fresh UK and euro zone data for direction.

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GBP is holding steady below 1.3400 as markets digest the Bank of England’s closely split rate cut and recent U.S. inflation data. Sterling has shown resilience despite a surprise drop in UK retail sales, with investors taking some comfort from signs the BoE may be nearing the end of its easing cycle. Near-term direction remains tied to U.S. data and broader risk sentiment as traders reassess the Fed–BoE policy outlook into 2026.