The Morning Update

The USD steadies, oil prices weaken, equity markets and US yields are mixed, as risk-off mood grows amid a dovish Fed. The dollar holds near multi-week lows after the Federal Reserve cut rates by 0.25% and delivered a softer policy tone than markets anticipated. The dovish shift outweighed a brief bout of risk-off sentiment, leaving USD broadly weaker against major peers. With the Fed signalling a more accommodative path ahead, the dollar remains under pressure. Global equity markets are mixed as concerns over heavy AI-related spending, sparked by Oracle’s weak results and sharply higher capex outlook, offset the initial optimism from the Fed’s 0.25% rate cut and Powell’s constructive tone. The tech-led selloff weighed on U.S. futures and spilled into major global indices, tempering earlier gains. While investors welcomed the Fed’s signals of continued—but more measured—easing into 2026, renewed doubts about the sustainability of AI-driven valuations have kept broader equity sentiment cautious. Elsewhere, oil prices have softened amid lingering concerns over demand and shifting macro sentiment. Gold, meanwhile, remains firm as investors continue to favour safe-haven assets in an uncertain risk backdrop. Bitcoin has come under heavier pressure, sliding over 3% and testing the $90,000 level as risk-off flows extend into crypto markets. Today sees a light economic calendar, with focus on US Initial Jobless Claims for direction.

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In the news. The Fed cuts rate to 3-year lows after fractious meeting. The US seizes an oil tanker off Venezuela. Oracle shares slide on $15bn increase in data centre spending. The ECB to simplify bank capital rules and dial down scrutiny of smaller lenders. Zelensky talks Ukraine postwar plan with Bessent, Kushner and Fink. Lagarde says the ECB will probably lift growth forecasts. Mexico approves up to 50% tariffs on China and other Asian nations. The Bank of Canada holds the key interest rate at 2.25%, saying the economy has proved 'resilient'. The TSX posts a record closing high after the central bank rate decision.

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In currency markets. The Swiss franc is strengthening as investors rotate into safe-haven currencies amid softer USD momentum.  The Australian dollar remains weak, pressured by broader risk-off sentiment and external headwinds.  The Chinese yuan is relatively firm, with USD/CNY drifting lower as supportive macro factors help stabilize the currency. CNY up 0.1%, while Asian currencies fall 0.3% on average, against the USD. Trading currencies are mixed, with AUD, MXN & NOK weakening 0.2%, NZD down 0.1%, JPY, PLN, & KWD flat, SEK, DKK, ZAR, & CZK are up 0.15%, and CHF strengthens 0.35% against the USD.

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In commodity markets. Oil price weakened by 1.45%. Natural Gas tumbled 2.5%. Gold & Wheat prices firmed by 0.55%. Silver prices rallied 2.7%. Coffee prices gained by 0.7%, and Soybean prices are up 0.2%.

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CAD holds near a 2½-month high after the Bank of Canada held rates steady and the Fed’s continued easing cycle weighed on the U.S. dollar, but the broader outlook is becoming more complicated. Oil prices have since weakened, removing a key pillar of CAD support at a time when uncertainty around the USMCA’s 2026 joint review and ongoing tariff tensions pose growing risks for Canada’s trade-sensitive economy. With negotiations stalled and the potential for renewed U.S. trade measures ahead, analysts warn that the loonie could come under pressure despite the current Fed–BoC policy divergence favouring CAD in the near term. The Bank of Canada held its policy rate at 2.25%, noting that the economy has remained more resilient than expected despite trade-related pressures, with inflation hovering just above target and core measures still elevated. Policymakers signalled that uncertainty remains high but indicated the rate is likely to stay unchanged through 2026 as growth slows before rebounding.

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EURCAD continues to edge higher, supported by a steadier ECB stance and firm underlying euro demand. At the same time, the loonie’s momentum has faded as weaker oil prices and uncertainty surrounding the 2026 USMCA joint review weigh on investor sentiment. With trade-related headwinds persisting and domestic support for CAD softening, EUR/CAD remains biased to the upside in the near term.

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EUR holding above 1.1700, with gains capped as the recent pause in the U.S. dollar’s decline tempers upside momentum ahead of key U.S. Jobless Claims data. The broader bias remains modestly constructive following the Fed’s dovish 25 bp cut. Still, conviction is limited, and the pair is likely to stay sensitive to incoming U.S. data and policy signals. On the European side, the ECB’s steady, wait-and-see stance after cutting rates by 200 bps this year offers the euro some underlying support.

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GBPEUR eases in early trading as sterling stays on the back foot ahead of Friday’s UK GDP report and next week’s BoE meeting, where markets widely expect a 25 bp cut. The euro remains better supported by the ECB’s steady policy stance, with additional attention on Friday’s German inflation data, which could help shape expectations for the next ECB move. Broader market sentiment remains cautious ahead of key U.S. GDP figures, leaving GBP/EUR slightly lower as diverging policy outlooks and softer UK fundamentals weigh on the pound.

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GBP remains heavy below 1.3400 as a modest rebound in the US dollar and pre-data caution limit sterling’s upside ahead of today’s US Jobless Claims release. While the Fed’s 25 bp cut has softened the broader USD tone, expectations of a “hawkish cut” and a potential pause in early 2026 continue to restrain gains in the pair. Sterling also stays on the defensive as markets look toward Friday’s UK GDP report, with investors assessing whether a modest rebound in activity will be enough to temper expectations for a BoE rate cut next week.

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