The Morning Update

The USD holds steady, oil prices flat, equity markets are mixed, and US yields rise as markets digest Trump 2.0. Currency markets held within tight ranges in early trading as amid uncertainty of proposed tariffs and as investors await US jobs data & Fridays European and US PMI reports. Equity markets are mixed, with many global markets holding near record highs, propelled by optimism for AI growth and a batch of corporate quarterly earnings. The risk of tariffs in Europe, China, Mexico and Canada, though the US has held off implementing any measures continues to weigh on risk sentiment. "We continue to expect near-term volatility as markets react to incoming Trump headlines, and see negative impact on targeted regions if the administration follows through with the proposed tariffs," said Haefele, CIO at UBS Global Wealth Management. Elsewhere, oil prices eased after an industry report pointed to the first gain in US crude stockpiles since November. Bitcoin slips to $101k after testing all time highs past $109k on Monday, while gold & silver prices both weaken in early trading. In focus today, the US initial jobless claims, President Trump speech, & CAD retail sales will help provide intraday direction to currency markets.

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In other news. A record number of US companies weigh China exit as Trump tensions rise. Davos hits 'peak pessimism' on Europe on US exuberance rise. The UK to investigate Apple and Google's mobile ecosystems. Putin growing concerned by Russia's economy, as trump mulls more sanctions. New wildfire near Los Angeles explodes to 9,400 acres, forces evacuations. PM Trudeau, and premiers urge shoppers to buy Canadian as the country prepares for a trade war. Freeland to scrap Canada Capital gains hike if she's elected. Davos 2025, Trump set to address WEF; while Germany's finance minister calls for 'debt brake' reform.

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In currency markets. Investors are focused on the BoJ which is expected to raise interest rates on Friday, for the first time since 2008. GBP holds near multi-week highs, while the USD stalls amid tariff uncertainty. CNY weakens by 0.2%, while Asian currencies eased by 0.1% on average against the USD. Trading currencies remain under pressure, with ZAR weakening 0.35%, MXN slipped by 0.2%, AUD & SEK eased 0.1%, while NOK, CHF, JPY & NZD flat against the USD.

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In commodity markets. oil prices are flat, Natural Gas, Gold, Copper, and Wheat eased by 0.5%. Silver prices weakened by 1%, and Soybean prices eased by 0.3%.

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CAD returns to 1.4400 levels as oil prices test fresh multi-week lows, while investors brace for the prospect of US tariffs as early as February 1st and as expectations grow for the BoC to cut interest rate at its meeting next week. The loonie has had a volatile week since Monday's Trump inauguration which has seen CAD trade between 1.4300 to a nearly 5-year high of 1.4515. Intraday CAD Retail Sales is expected to ease to 0.2% m/m in November, and US initial jobless claims will provide direction to the loonie.

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EURCAD continues to extend gains as weaker commodity prices and the threat of 25% tariffs continues to keep the loonie under pressure.

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EUR advances amid a softer USD as focus shifts to US jobs data. Euro clings to its weekly gains, despite the threat of US tariffs on the eurozone and the prospect of ECB rate cuts. "The direction is very clear," President Lagarde told CNBC in Davos  discussing interest rates. 'The pace we shall see depends on data, but gradual moves is certainly something that comes to mind at the moment." Focus will be today's US jobs data and Friday's US & Eurozone PMI's reports to help provide direction to the single currency.

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GBPEUR drops to near four-month lows, with the pound down almost 2% in January on increasing expectations of the BoE taking a more dovish stance on interest rates.

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GBP stalls below 1.2350 as markets steady ahead of Friday's critical PMI's reports. The pound stalls below two week highs against the USD as the pound suffers with the lack of clarity on President Trump's tariff plans. The UK appears to off the US radar for tariff's which could help provide support against its G10 peers in Q1, but the prospect of further BoE interest rate cuts vs the Fed which is expected to keep rates on hold in H1/25. Intraday US jobs data and Friday's PMI's report will help guide the pounds direction this week.