The Morning Update

The USD strengthens, oil prices advance, equity markets are mixed, and US yields rise following the Fed's comments. The USD firmed after Fed Chair Powell highlighted the need to balance inflation control with labour market stability, even as markets continued to price in two more rate cuts this year. The euro was little moved by weak German business confidence, while sterling slipped and investors shifted focus to Friday’s U.S. Core PCE price index for fresh policy signals. Global Equity markets slipped today, mirroring declines on Wall Street on Tuesday as Fed Chair Powell tempered expectations for rapid U.S. rate cuts. In Europe, defence shares outperformed after U.S. President Trump voiced support for Ukraine’s efforts to reclaim occupied territory. Asian sentiment was boosted by Alibaba’s pledge to increase AI spending and Micron’s upbeat earnings, which supported hopes for continued momentum in the tech sector. Despite recent volatility, the S&P 500 has maintained an impressive run without a major drop, underscoring investors’ willingness to look past lingering risks. “There could be short-term ripples, but the big story for markets is the overwhelmingly easy monetary policy and the huge capex boom in AI,” said Alexandra Morris, an investment director at Skagen. Elsewhere, oil prices rallied as U.S. crude inventories declined, tightening the near-term supply outlook. Gold and silver eased amid caution, while Bitcoin rebounded toward $113,000, gaining ground as sentiment improved. Today's economic calendar features a light schedule, with a focus on US New Home Sales, BoE Greene, and Fed Daly Speeches to help provide intraday direction.

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In the news. Trump says Ukraine can win back all of its territory seized by Russia. Big banks unwind Hong Kong retreat as dealmaking booms. Italy weighs freezing its retirement age at 67. New Zealand picks Anna Breman as the Swedish national as its central bank governor. Iran rules out negotiations with the US on its nuclear programme. Typhoon Ragasa bears down on China after killing 15 in Taiwan. Disruptions drag on at Berlin airport after cyberattack. Carney touts trade opportunities with China, aims to meet with Xi. RBC CEO says Visa fee gives Canada a chance to grab tech talent. Spanish Defence Minister's jet suffers GPS disturbance near Russia's Kalingrad.

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In currency markets. The U.S. dollar gained broadly, leaving the Norwegian krone weaker as risk-off sentiment and yield spreads continued to favour the greenback. The Japanese yen also lost ground, with traders alert to possible intervention if USD/JPY pushes higher. The South African rand slipped as domestic headwinds and persistent dollar strength pressured the currency. CNY fell 0.2%, and Asian currencies on average weakened by 0.3% on average against the USD. Trading currencies came under pressure, with CZK & PLN tumbling 0.8%, NOK, SEK, DKK, CHF and JPY weakened by 0.5%, MXN & NZD fell 0.3%, KWD down 0.1% and outlier AUD rose 0.1% against the USD.

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In commodity markets. Oil prices rallied 1%. Natural Gas prices tumbled 1%. Gold and Copper fell 0.5%. Silver prices weakened 0.9%. Wheat prices are up 0.1% and Soybean prices eased 0.35%.

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CAD continues under pressure, sliding towards multi-week lows against the U.S. dollar, as it is pressured by widening Canada-U.S. interest rate spreads that favour the greenback. The loonie traded near 1.3840, with the Canadian 2-year yield sitting over 110 basis points below its U.S. counterpart, a gap that has grown since late August. Bank of Canada Governor Tiff Macklem reiterated the central bank’s commitment to supporting growth while keeping inflation in check, just days after delivering its first rate cut since March. Despite oil prices rising nearly 2% on supply concerns, sentiment toward the loonie remains weak, with markets pricing a 50% chance of another BoC cut in October.

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EURCAD eased in early trading but continues to hold near multi-year highs, reflecting firm demand for the euro alongside ongoing softness in the Canadian dollar. While short-term pullbacks are possible, sentiment remains tilted in favour of further euro strength unless Canadian data or commodity prices offer fresh support for the loonie.

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EUR slipped below 1.1800 after weaker-than-expected German IFO sentiment data, with the index dropping to 87.7 and undermining euro confidence. The dollar strengthened as markets reacted to Fed Chair Jerome Powell’s comments, which highlighted the balance between inflation risks and growth, reinforcing demand for the greenback. Attention now turns to Powell’s upcoming remarks and Friday’s Core PCE price index — the Fed’s preferred inflation gauge.

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GBPEUR edged through 1.1450 after Germany’s IFO Business Climate Index fell more than expected, highlighting weaker sentiment among German firms. Despite the move, the pair’s broader bearish bias persists as sterling remains weighed down by disappointing UK PMI data. With both economies showing softer growth signals, the direction of GBP/EUR will hinge on comments from the ECB and BoE.

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GBP fell against the USD as Fed Chair Jerome Powell signalled caution on aggressive rate cuts, keeping the dollar supported. UK data showed business activity slowing in September, with the Composite PMI easing to 51.0 as manufacturing contracted and services weakened. Signs of job losses and softer overseas demand added to concerns about the UK’s economic outlook. While the BoE held rates at 4% last week, slowing growth alongside still-elevated inflation leaves sterling under pressure.