The Morning Update

The USD remains under pressure, oil prices weaken, equity markets are mixed, and US yields ease as investors await Fed comments. The USD Index tests its lowest level since March, while the JPY rallies as funds go long for the first time in years. Equity markets stall as the S&P 500 comes off its best week of 2024, and investors shift their focus to Fed Chair Powell's comments on Friday from the annual Jackson Hole Economic Symposium. "We expect Powell will hold forth on the medium-term strategy for the Fed," Seth Carpenter, CGE at Morgan Stanley, wrote. Goldman Sachs over the weekend trimmed the possibility of a US recession in the next year to 20% from 25%, citing last week's retail sales & jobless claims data. Elsewhere, oil extends losses on China demand concerns and the prospect of a Middle East ceasefire. Bitcoin weakened 2%, falling below $58,500, while gold prices are flat, and silver prices edge higher. In focus this week, Monday sees a light economic calendar with just the Fed's Waller speech. Tuesday, AUD RBC Minutes, CAD BOC CPI. Wednesday, FOMC Minutes. Thursday, German PMI, UK PMI, US Jobless Claims, US PMI, and Jackson Hole Symposium begins. Friday, Fed's Chair Powell's Speech, and BoE Bailey's Speech.

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In other news. Blinken warns Israel and Hamas of the last chance to end the Gaza war. Canada's Couche-Tard makes Japan's biggest-ever foreign takeover bid Japan's 7-Eleven. Union at BHP's Escondida copper mine in Chile signs new deal, ending risk of strike. Moscow says Ukraine struck a third bridge over the Seym River in Russia's Kursk region. China & Vietnam signed 14 deals from retail to crocodiles after leaders met. Oil spill reported off Venezuela's Caribbean coast. Ukraine wants to create a 'buffer zone' with the Kursk incursion, says Zelenskyy. Fed's Daly backs gradual interest rate cuts as inflation 'confidence' mounts.

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In currency markets. The USD Index extends its sell-off ahead of the Fed Chair's Jackson Hole speech. In Asia, the CNY extends gains, the Thai baht hits its highest level since January on strong Q2 GDP growth, and the JPY rallies as fund managers flip their short yen positions. CNY and Asian currencies strengthen by 0.3% on average against the USD. Trading currencies are mixed, with MXN down 0.2%, SEK & NOK flat, CHF up 0.1%, AUD & NZD gaining 0.3%, ZAR strengthening by 0.4%, and JPY rallying by 0.8% against the USD.

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In commodity markets. Oil prices tumbled by 1%, natural gas prices up by 0.25%, gold prices are flat, silver prices strengthened by 0.7%, copper prices rallied by 1.2%, wheat prices weakened by 0.85%, and soybean prices gained by 0.55%.

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CAD steadies near four-week highs, with the loonie benefiting from the ongoing USD weakness on the prospect of a Fed rate cut in September. Without any fresh US or CAD economic data releases today, we expect the loonie to hold within its current range despite weakening oil prices. Investors will be focused on Tuesday's Canadian inflation report, which is expected to see inflation levels continue to ease from 2.7% in June to the forecasted 2.4% in July.

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EURCAD holds on to weekly gains, approaching 1.5100, with investors sidelined heading into Tuesday's CAD inflation data release.

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EUR holds near 2024 highs amid ongoing USD weakness and caution ahead of the Fed Chair's comments. The euro continues to find investor support amid increasing Fed rate cut expectations and ongoing USD weakness. This week's key focus for investors will be Fed Chair Powell's comments at the Jackson Hole Symposium, where many expect him to give positive signals for a rate cut in September. Intraday, without any high-tier economic data, we expect markets to remain sidelined. Domestically, the focus will be on tomorrow's German Producer Price Index & the EU Harmonized Index of Consumer Prices for direction on Tuesday.

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GBPEUR continues its upward trajectory, rallying from a 1.1600 low on August 5th, gaining over 1% following last week's positive growth and UK retail data, which is expected to see the BoE pause its rate easing policy in September.

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GBP extends two weeks of gains, testing a fresh one-month high amid ongoing USD weakness. The pound continues to extend gains, breaching 1.2950 following last week's strong UK employment data and hotter-than-expected inflation data, which caused investors to dial back their expectations that the BoE will cut interest rates in September. Investors will have to wait until Thursday for the UK Composite, Manufacturing, & Services PMI and Friday's Fed Chair Powell's speech to provide direction to the pound this week.