The Morning Update

The USD firms, oil prices edge higher, equity markets are up, and US yields are mixed, with central banks in focus. The U.S. dollar firms modestly as investors position ahead of key ECB and BoE rate announcements, with the dollar index holding near recent highs. Support for the greenback also comes from Fed Governor Christopher Waller’s comments that the central bank still has room to cut rates as the labour market weakens, reinforcing expectations of a gradual easing path rather than aggressive moves. With the ECB expected to stay cautious and the BoE widely seen cutting rates, relative policy dynamics continue to favour near-term dollar resilience. Global equities rebounded, led by technology stocks after Micron’s upbeat outlook sparked a rally in U.S. futures, with the Nasdaq and S&P 500 pointing higher. At the same time, European shares edged up, and Asian markets lagged. Investor focus is now firmly on central bank decisions, with the ECB expected to keep rates unchanged and the BoE widely seen delivering a rate cut, alongside U.S. inflation data for further policy clues. Elsewhere, oil prices firmed on supply concerns linked to U.S. actions against Venezuela. Gold prices eased from recent highs, while Bitcoin strengthened toward the $87,500 level as risk appetite improved. In focus today are the BoE & ECB, US CPI & US initial jobless claims, which will help drive the direction of the currency markets intraday.

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In the news. Putin's retaliation threat over frozen assets rattles EU capitals. Trump defends record on economy in combative address. Canada defends US exemption from global minimum tax deal. BP appoints first outsider as CEO after ousting Auchincloss. Trump official signals support for trade deal with Canada and Mexico. The US approves $11 billion arms sale to Taiwan, drawing China's Ire. EU leaders fight over Ukraine aid and trade deal. The US consumer prices likely posted the largest annual increase in 1 1/2 years in November. UK firm Awendio Solaris plans $725 million solar plant with indigenous groups in Canada. Eli Lilly cuts prices of diabetes and weight-loss drugs in Canada.

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In currency markets. Currency markets are largely sidelined today as traders wait for key central bank decisions from the ECB and the Bank of England, keeping major pairs relatively range-bound ahead of policy guidance. Investors are cautious about taking prominent positions until the ECB’s outlook and the BoE’s likely rate cut are announced, alongside U.S. inflation data that could shape cross-market expectations. CNY & Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY and CZK weakening 0.25%, DKK down 0.15%, CHF, MXN, KWD, NZD, SEK, NOK, ZAR & PLN flat, and AUD up 0.1% against the USD.

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CAD is treading water below 1.3800 after rebounding from the 1.3730 area, with the pair consolidating ahead of key U.S. inflation data. The loonie is sidelined in early trading as steady Canadian inflation and softer commodity prices offset support from BoC Governor Macklem’s comments that the policy rate at 2.25% is “about the right level,” reinforcing expectations that the Bank of Canada is comfortable staying on hold for now. Markets see the BoC’s next move as data-dependent — potentially higher for longer — while focus remains on U.S. CPI and Friday’s Canadian retail sales for fresh direction.

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EURCAD slips toward 1.6150 as the Canadian dollar strengthens on oil supply concerns linked to U.S. actions against Venezuela and potential tighter sanctions on Russia. The euro remains supported by easing eurozone inflation and reduced prospects of further ECB easing, with markets now focused on the ECB’s policy decision for near-term direction.

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EUR remains on the back foot below 1.1750 as traders stay sidelined ahead of the ECB’s policy decision and accompanying statement. While rates are expected to remain unchanged, recent hawkish comments from ECB officials suggesting policy is in a “good place,” and that further easing may not be needed have helped limit euro downside. Markets will watch closely for any confirmation of this stance in the ECB’s projections and President Lagarde’s guidance, alongside U.S. CPI for near-term direction.

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GBPEUR weakens as sterling remains under pressure following softer UK inflation, which has cemented expectations of a Bank of England rate cut. In contrast, the ECB is expected to keep rates on hold and signal that policy is “in a good place,” with recent stronger activity, wage and inflation data reducing expectations for further easing and supporting the euro. This growing policy divergence between a dovish BoE and a steadier ECB is keeping the bias tilted in favour of the euro.

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GBP remains under pressure ahead of the Bank of England’s policy decision, with markets fully pricing a 25bp rate cut to 3.75% after UK inflation fell more sharply than expected and the labour market weakened. While the cut would mark the BoE’s fourth of the year, policymakers are expected to stress a gradual, cautious easing path given persistent service inflation. Investors see limited scope for aggressive follow-up cuts in 2026, keeping the pound defensive as attention turns to the vote split and guidance.