The Morning Update

The USD & oil prices ease, equity markets are down, and US yields ease as Middle East tensions rise. The escalation of tensions in the Middle East following reports that Israel had conducted a limited strike against Iran, which triggered safe-haven gold, oil, and USD to rally and equity markets & treasury yields to weaken. Iranian media responded by downplaying the impact of Israeli strikes, with the semi-official Mehr agency quoting Army Commander-in-Chief Mousavi saying that Tehran has already reacted to Israeli threats. The USD, oil, and gold gave up their early gains following Iran's response, while equity markets remain under pressure, with the Stoxx Europe 600 set for a third straight week of losses. Elsewhere, Fed officials continue their hawkish comments on domestic policy, with Atlanta's Bostic saying he doesn't think it will be appropriate to ease until toward the end of 2024. Minneapolis Fed chief Kashkari told Fox News that the Fed may hold rates steady all year. Today, with the lack of any key economic data releases, we anticipate currency markets will be relatively stable and will look for comments from the Fed & the IMF meeting to help provide direction.

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In other news. Tehran plays down reported Israeli attacks, signaling no further retaliation. Fed's rate-cut foot-dragging grates on global peers at IMF meeting. UK Retail sales stagnate despite easing inflation. Cash shortages and attacks thwarted Ukraine's growing arms sector. Business travel picks up, bolstering the outlook for US airlines. Bitcoin is 'halving' today, a change to the crypto currency's underlying technology designed to cut the rate at which bitcoins are created. US votes against the move to give Palestinians UN membership. India's six-week election opens as Modi seeks a third term. The US House votes on the proposed US aid package for Ukraine, Israel, and other allies.

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In currency markets. The USD gives up early gains as Middle East tensions ease. MXN attempted to rebound after tumbling 2.33% on the Israeli attack on Iran. Currency markets are steady but remain cautious of any possible future response by Iran. CNY holds flat, and IDR weakens by 0.5%, while Asian currencies, on average, slip by 0.1% compared to USD. Trading currencies remain cautious, with MXN tumbling 1.35%, ZAR weakening by 0.4%, NZD down 0.15%, AUD & NOK flat, JPY & SEK firming 0.1%, and CHF gaining 0.4% vs USD.

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In commodity markets. Oil, silver & gold prices are flat, natural gas prices weakening by 0.7%, copper prices strengthening by 0.8%, wheat prices rallying by 1.1%, and soybean prices firming by 0.3%.

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CAD steadies after a volatile start, which saw the loonie trade within the 1.3740-1.3805 range following the Israeli attack and Iran's response, and oil prices surging 3% initially on the news. The increasing rhetoric from the Fed that domestic interest rates are now expected to be kept on hold until Q4 or beyond is expected to keep the loonie under longer-term selling pressure. Today, with the lack of any key economic data releases, we expect the CAD to hold within the current trading range and will monitor geopolitical conditions for direction.

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EURCAD had an active morning, initially weakening after oil prices spiked to 3% and rebounding after oil prices gave back early gains on Iran's restrained comments.

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EUR holds within a tight trading range as investors are sidelined amid Middle East uncertainty. The Euro has been relatively calm despite the rally in safe-haven currencies in response to the Israeli attack on Iran. Any escalation in Middle East tensions would likely pressure the Euro, but we see the Euro hold below 1.0700 without any key US economic releases. Domestically, German PPI m/m beat expectations, printing up 0.2% vs February -0.4%, y/y PPI improved to -2.9% vs -4.1% in February.

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GBPEUR holds steady and is flat for April as investors appear sidelined with the absence of any key US economic releases today and caution over escalating Iran/Israel tensions.

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GBP holds steady, straddling 1.2450 following the UK retail sales. UK Retail Sales m/m rose marginally by 0.8%, vs -0.3% in February, while y/y Retail Sales were flat, disappointing markets with stagnant growth. The pound continues to find underlying support from hawkish BoE comments. Bank of England Megan Greene commented that inflation data is too high for the institution to consider cutting the bank rate, blaming inflation in wages and services for higher inflation levels. Intraday comments from BoE's Ramsden and Fed's Goolsbee will help guide the pound.