The Morning Update

The USD advances, oil prices weaken, while equity markets and US yields are mixed as markets await the Fed pick. The U.S. dollar advanced in early trading, recovering part of its weekly losses as markets reacted to President Trump’s indication that a new Federal Reserve Chair will be announced soon, with reports pointing to Kevin Warsh as the likely nominee. The prospect of more independent, market-credible Fed leadership helped stabilize the dollar after it hit four-year lows earlier in the week, alongside support from a last-minute deal to avert a U.S. government shutdown. However, broader gains remain cautious as investors reduce risk ahead of the weekend amid persistent geopolitical tensions and policy uncertainty. Global equities were mixed, with Asian and U.S. markets trading lower while European stocks edged higher. Risk sentiment weakened in Asia and the U.S. as investors reacted to reports that Kevin Warsh is likely to be nominated as the next Federal Reserve Chair, a move seen as less supportive of aggressive rate cuts. European equities found modest support, outperforming amid relative policy stability despite broader global uncertainty. Elsewhere, gold weakened while the U.S. dollar advanced after reports that former Fed governor Kevin Warsh visited the White House, fuelling expectations of tighter monetary policy. Risk-off sentiment also weighed on Bitcoin and oil, with crypto extending recent losses and crude easing despite elevated geopolitical tensions keeping energy markets on edge. In focus today, the German inflation report, CAD GDP, and the US PPI will help drive currency direction.

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In the news. Trump is preparing to nominate Kevin Warsh for Fed Chair. The Eurozone economy unexpectedly grew by 0.3% in the fourth quarter. Trump warns Starmer against closer business ties with China. The US threatens to 'decertify' Canadian aircraft amid a deepening rift with Ottawa. Apple's blockbuster iPhone sales power record $144bn quarter. Trump says Putin has agreed to suspend attacks on Ukraine's capital. Arab and Muslim powers mount a last-ditch effort to avert a US-Iran conflict. Chevron earnings beat as production hits record with upside expected in Venezuela. The WHO sees a low risk of the Nipah virus spreading beyond India.

In currency markets. The Swiss franc remains in focus after the SNB reiterated that it does not engage in FX manipulation, despite Switzerland remaining on the U.S. Treasury’s monitoring list, and emphasized that currency interventions are used solely to meet its inflation mandate. Meanwhile, the Japanese yen has eased after a recent rally, with official data confirming Japan has limited its response to verbal warnings rather than direct market intervention, even as authorities signal readiness to act if moves become disorderly.

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In commodity markets. Oil & Natural gas eased 0.8%. Gold weakened by 4%. Silver prices tumbled 11%. Copper fell by 3%. Coffee prices dropped 1.2%. Soybean prices are down 0.4%, and Wheat prices firmed 0.3%.

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CAD weakens in early trading, with the loonie breaking 1.3500 ahead of President Trump’s announcement of the next Federal Reserve Chair. Softer commodity prices are weighing on the loonie after a period of strong performance supported by oil and firm risk sentiment. Adding to pressure, Canada recorded a sharp widening in its trade deficit in November as exports to the U.S. fell. Focus now turns to Canadian GDP data later today and the Fed Chair pick today for further direction.

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EURCAD is steady as euro softness is offset by a weaker Canadian dollar, leaving the pair range-bound. While the euro is weighed by ECB caution and upcoming German inflation data, the loonie is under pressure from softer commodity prices and a widening trade deficit.

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EUR weakens in early trading, dropping below 1.1950 despite stronger-than-expected Eurozone and German growth figures for Q4. Gains have been capped as investors look ahead to upcoming German inflation data, which will be key in shaping ECB policy expectations amid growing concern over excessive euro strength. Meanwhile, renewed U.S. dollar demand has been driven by speculation around President Trump’s imminent announcement of the next Federal Reserve Chair, keeping the euro on the defensive in the near term.

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GBPEUR is flat in early trading as sterling steadies against the euro. The euro has found some support after Eurozone GDP data came in stronger than expected, while attention now shifts to upcoming German inflation data for further direction. UK inflation continues to underpin the pound, keeping the pair broadly range-bound.

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GBP falls in early trading, but finds initial support at 1.3750 as renewed U.S. dollar demand returns. The greenback has been supported by a deal to avoid a U.S. government shutdown and growing focus on President Trump’s imminent announcement of the next Federal Reserve Chair. While UK fundamentals remain relatively supportive, near-term price action is being driven by U.S. political and policy developments, with U.S. Producer Price Index data also in focus later today.