The Morning Update

The USD strengthened and oil prices rose, while equities and US yields traded mixed, as political uncertainty and the U.S. government shutdown kept investors cautious. The USD rebounded in early trading after recording its worst week since August, as markets positioned for another 25bp Fed rate cut at the October meeting. The yen saw its sharpest five-month decline against the dollar after Sanae Takaichi secured leadership of Japan’s Liberal Democratic Party, raising expectations for expansionary fiscal policy and adding uncertainty to the Bank of Japan’s monetary outlook. Global equity markets are mixed as investors weigh the impact of political and policy developments. U.S. stock futures edged higher on Monday, with the S&P 500 and Nasdaq futures up 0.4% and 0.6%, respectively, extending Wall Street’s recent rally despite the ongoing U.S. government shutdown delaying key economic data, including the September jobs report. Political shifts added to the cautious tone, as France’s Prime Minister resigned and Japan welcomed new leadership under Sanae Takaichi, whose expansionary fiscal stance is reshaping market expectations for the Bank of Japan. Overall, optimism around tech and easing expectations helped offset lingering uncertainty from political and policy turbulence across major economies. Oil prices rose after OPEC’s output hike came in below expectations, boosting market sentiment. Bitcoin surged to a record high above $125,000, extending weekly gains on strong ETF inflows totalling $3.24 billion. Gold also climbed toward the $4,000 mark as investors sought alternative stores of value amid the ongoing U.S. government shutdown.

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In the news. France's Prime Minister resigns less than a month after being appointed. Japanese stocks soar and yen tumbles after Takaichi wins ruling party leadership. Negotiators gather for Gaza talks, mediators caution deal may not be swift. A Judge blocked Trump from sending California troops to Oregon. Boeing said to prepare to hike 737 output as soon as October. Asahi restarts Super Dry factories as brewer races to avoid beer shortages. Aston Martin issues profit warning, citing impact of US tariffs. EU watchdog prepares to expand oversight of crypto and exchanges. Prime Minister Carney to make a working visit to Washington, DC.

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In currency markets. Currency markets opened on a volatile note today, with the U.S. dollar rebounding as political uncertainty continues to weigh on investor sentiment. Broader market caution and shifting rate expectations are driving renewed demand for the greenback. CNY is flat, while Asian currencies fell 0.4% on average against the USD. Trading currencies remain under pressure, with JPY tumbling 2%, CZK & SEK weakened 1%, DKK, CHF, NOK & PLN fell 0.7%, MXN, and ZAR down 0.3%, KWD and NZD eased 0.15%, and AUD is flat against the USD.

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In commodity markets. Oil prices strengthened 1.8%. Natural Gas prices rallied 4%. Gold prices gained by 1.4%. Silver prices firmed 0.8%. Copper & Coffee prices tumbled 1.1%. Soybean and Wheat prices are up 0.25%.

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CAD slipped in early trading but outperformed most of its G10 peers as markets awaited Tuesday’s meeting between Prime Minister Mark Carney and U.S. President Donald Trump, as well as the release of Canada’s Ivey PMI report. Despite oil prices trading 1% higher, weaker crude overall and a softer terms of trade continue to weigh on the loonie, according to Scotiabank strategists Shaun Osborne and Eric Theoret. The U.S. government shutdown and the lack of key U.S. data have added to market uncertainty, leaving the CAD sensitive to broader sentiment. Attention will also turn to Friday’s Canadian employment data for further direction on the Bank of Canada’s outlook amid signs of weakness in the services sector and ongoing trade concerns.

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EURCAD weakened as political uncertainty in France deepened following Prime Minister Sébastien Lecornu’s resignation shortly after forming his cabinet, unsettling investor confidence. The fallout weighed on French and broader European markets, adding pressure to the euro across major pairs. Meanwhile, the Canadian dollar held firmer by comparison, supported by stable commodity prices and cautious sentiment ahead of key domestic data releases.

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EUR fell sharply on Monday after French Prime Minister Sébastien Lecornu unexpectedly resigned, deepening political turmoil in France and raising questions about President Emmanuel Macron’s leadership. The news sent EUR/USD tumbling below 1.1700, approaching one-month lows near 1.1645 as investors reacted to renewed uncertainty in the Eurozone’s second-largest economy. Lecornu’s resignation — the fifth prime ministerial change under Macron’s second term — has shaken market confidence and weighed heavily on the euro across major pairs. Meanwhile, the ongoing U.S. government shutdown entered its second week, adding to global risk aversion as political tensions in Washington escalate. Attention now turns to remarks from ECB President Christine Lagarde in Strasbourg for guidance on the central bank’s stance amid the political and economic turbulence.

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GBPEUR strengthened through 1.1500 after the surprise resignation of French Prime Minister Sébastien Lecornu, deepening France’s political instability. The move heightens concerns over potential snap elections and growing fiscal challenges, prompting investors to exercise caution. Additionally, dovish comments from ECB Chief Economist Philip Lane have further limited support for the euro.

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GBP eased in early trading as renewed dollar strength and the ongoing U.S. government shutdown weighed on risk sentiment. Markets remain cautious amid uncertainty over the duration of the shutdown, with the absence of key economic data further clouding the outlook for Federal Reserve policy. Fed Chair Jerome Powell’s recent cautious tone reinforced expectations for gradual rather than aggressive rate cuts later this year. Meanwhile, Bank of England policymaker Catherine Mann warned that UK inflation may remain stickier than expected, suggesting the BoE will maintain a careful stance on future easing. Together, these factors have left GBP/USD rangebound as traders await further clarity from both central banks and developments in Washington.