The USD holds steady, oil prices retreat, equity markets are up, and US yields ease amid increasing US-Iran tensions. The U.S. dollar held onto recent gains in early trading as renewed U.S.-Iran air strikes and escalating Gulf tensions continued to support safe-haven demand. Stronger-than-expected U.S. inflation data also reinforced expectations that the Federal Reserve will keep interest rates higher for longer. Investors are now focused on next week's Fed meeting for further guidance on the interest rate outlook. Global equity markets traded higher in early trading as investors looked past ongoing U.S.-Iran tensions and focused on easing inflation concerns ahead of next week's Federal Reserve policy meeting. European and Asian equities advanced, supported by expectations that central banks may avoid more aggressive tightening, while improving sentiment around the AI sector also helped underpin risk appetite. However, geopolitical risks in the Middle East and uncertainty over the interest rate outlook are expected to keep investors cautious. Elsewhere, oil and gold prices eased as investors assessed signs of contained inflationary pressures and the absence of a broader escalation in hostilities in the Middle East, reducing immediate safe-haven demand. Bitcoin prices rebounded, supported by improving risk appetite and expectations that the Federal Reserve will leave interest rates unchanged at next week's policy meeting. Markets will be focused on the US PPI report and the ECB Interest rate decision to help drive intraday direction.
News Headlines. The US becomes India's top gas supplier, as Iran war cuts off from the Gulf. US and Iranian attacks dent ceasefire; Iranian sources say talks intensify. US and Iran wrangle over frozen funds as they edge toward an interim deal, Iranian sources say. China cancels high-level meeting with EU. US inflation jumped to 4.2% in May amid Middle East energy shock. Alberta says it's talking with a Fortune 500 firm to finance an oil pipeline. Warren wants Wall Street to disclose data on exposure to AI firms. Trans Mountain pipeline in Canada hits full capacity two years after upgrade. Canada introduces legislation to ban social media for children under 16, regulate AI chatbots.
In currency markets. Against the U.S. dollar, major currencies were largely sidelined in early trading as investors awaited the outcome of today's ECB policy decision and looked ahead to next week's Federal Reserve and Bank of Japan meetings. The euro, pound and yen traded in relatively narrow ranges, with markets reluctant to take aggressive positions amid elevated geopolitical tensions in the Gulf. Ongoing U.S.-Iran hostilities and expectations that major central banks will maintain a cautious stance continued to underpin demand for the U.S. dollar.
In commodity markets. Oil prices retreat 0.7%. Natural Gas prices tumbled 2%. Gold prices eased 0.6%. Silver prices weakened 1%. Copper prices fell 0.85%. Coffee prices advanced 0.9%, while Soybean and wheat prices are flat.
CAD weakened in early trading, with the loonie moving towards the 1.4000 level despite the Bank of Canada leaving interest rates unchanged at 2.25% as expected. The BoC's cautious, wait-and-see approach, combined with concerns over Canada's recent recessionary GDP data, ongoing trade uncertainty and softer expectations for future rate hikes, continued to weigh on the loonie. Rising oil prices offered some support, but uncertainty surrounding the upcoming CUSMA review and U.S.-Canada trade relations is expected to keep pressure on the Canadian dollar.
EURCAD held above 1.6100 in early trading as expectations for an ECB rate hike continued to support the euro ahead of today's policy decision. Meanwhile, the Canadian dollar remained under pressure after the Bank of Canada left interest rates unchanged and maintained a cautious outlook. As a result, the cross continues to trade near multi-month highs.
EUR traded broadly flat in early trading as investors awaited the outcome of today's ECB interest rate decision, where policymakers are widely expected to deliver a 25 basis point rate hike. Markets will focus closely on the ECB's updated economic projections and President Lagarde's guidance for clues on whether further tightening is likely later this year. Ongoing tensions in the Middle East and renewed demand for the U.S. dollar are helping limit gains in the single currency ahead of the announcement.
GBPEUR traded broadly flat in early trading, holding near recent highs as investors awaited today's ECB interest rate decision. While the ECB is widely expected to raise rates by 25 basis points, markets will focus on President Lagarde's guidance for clues on the likelihood of further tightening later this year. Attention is also turning to Friday's UK GDP and industrial production data, which could provide fresh direction for sterling.
GBP held steady in early trading as investors balanced expectations for a Bank of England rate hike later this year against a firmer U.S. dollar. Safe-haven demand for the greenback remained supported by escalating tensions between the U.S. and Iran, while markets also looked ahead to today's U.S. PPI report for further clues on the Federal Reserve's policy outlook. Ongoing UK political uncertainty is also helping to limit upside momentum in sterling.
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