The Morning Update

The USD edges higher, oil prices firm, while equity markets, and US yields are mixed ahead of today's US inflation report. The U.S. dollar edged higher but held largely steady as mixed labor and retail data reinforced expectations that the Federal Reserve will remain on hold in the near term. Attention now turns to Friday’s inflation report, which could determine whether the greenback extends gains or resumes its broader softening trend. Global equities were mixed, with U.S. futures and Asian markets trading lower while European stocks edged into positive territory. The Stoxx 600 posted modest gains as the recent tech-led selloff showed signs of stabilizing, even as sentiment remained fragile. Investors are treading cautiously ahead of key U.S. inflation data, with volatility persisting amid shifting expectations around Fed policy and AI-driven market dynamics. Elsewhere, gold and oil prices moved higher in early trading, supported by firmer risk sentiment and steady demand dynamics. Bitcoin also advanced, holding above key support levels as broader market appetite improved. Today's focus will be on the US CPI report which is predicted to ease to 2.5% y/y, while m/m is expected to edge higher to 0.3% vs 0.2% previously.

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In the news. Trump plans to roll back tariffs on metal and aluminium goods. Air France & KLM warns the EU that climate rules would halve Asian flights. Bangladesh dynastic heir defeats Islamist challengers in post-uprising election. Homeland Security shutdown seems certain as funding talks between the White House and Democrats stall. US & Taiwan finalize deal to cut tariffs, boost purchases of US goods. Stocks churn as tech selloff slows, while Gold rebounds. BMO hires ex-Barclays banker for Japan push. Stellantis Canada CEO says sale of Ontario battery plan was due to poor EV demand. EU trade keeps taking hist from US tariffs and Chinese competition data shows.

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In currency markets. Against the U.S. dollar, the Japanese yen was poised for its strongest weekly gain in nearly a year, supported by optimism following Prime Minister Sanae Takaichi’s landslide election victory. The yen rose for a fourth straight session, reflecting renewed confidence in Japan’s policy outlook and shifting positioning against the greenback. Meanwhile, the Australian dollar slips off three-year highs despite a hawkish rate hike, underscoring broader dollar softness. CNY slips 0.1%, while Asian currencies firmed 0.1% on average, against the USD. Trading currencies come under pressure, with ZAR tumbling 0.65%, AUD Y &JPY weakens 0.4%, SEK falls 0.25%, KWD, DKK, MXN & CZK down 0.1%, CHF, NZD, NOK, & PLN are flat against the USD.

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In commodity markets. Oil & Gold prices firmed 0.35%. Natural Gas & Copper prices weakened 1.1%. Silver prices strengthened 1.25%. Coffee rallied 2.5%. Soybean prices eased 0.45%, and Wheat prices fell 0.8%.

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CAD remain's under pressure in early trading, slipping against a broadly firmer U.S. dollar despite stabilizing commodity prices as investors await the key U.S. inflation report. The loonie fell after Thursday’s risk-off move, which saw equities and oil prices decline sharply while strong U.S. labor data tempered expectations for near-term Federal Reserve rate cuts. With Canadian yields also drifting lower, near-term direction for USD/CAD is likely to hinge on the outcome of the U.S. CPI release.

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EURCAD traded flat as balanced forces on both sides kept the cross confined to a narrow range. Steady Eurozone data and cautious ECB messaging supported the euro, while firmer commodity dynamics and underlying loonie resilience helped offset gains, leaving the pair without clear direction.

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EUR eases in early trading, drifting toward the 1.1850 area as cautious sentiment and a steadier USD keeping the euro on the defensive ahead of the key U.S. inflation report. Upbeat Eurozone GDP data offered little support, with risk-averse flows favoring the greenback as investors awaited clarity on the Federal Reserve’s policy path. All eyes are now on the CPI release, where a stronger-than-expected core reading could extend dollar gains, while softer inflation may allow the euro to stabilize into the weekend.

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GBPEUR traded flat as investors stayed sidelined ahead of the key U.S. inflation report. Softer UK GDP and rate-cut expectations weighed on sterling, while steady Eurozone fundamentals helped keep the euro supported.

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GBP slips in early trading, with the pound finding support at 1.3600 as the U.S. dollar firms ahead of the key inflation report. Domestic political uncertainty and the prospect of Bank of England rate cuts continue to weigh on sterling, limiting upside momentum. Today, direction will be driven by the U.S. CPI release which should give guidance to the Fed's next steps on direction for interest rates.