The Morning Update

The USD strengthens, oil prices weaken, equity markets are mixed, and US yields rise as rates remain in focus. The USD rebounded after Fed Chair Powell took a less dovish stance, saying the Fed will lower interest rates "over time," emphasizing that the overall economy remains on solid footing. European equity markets are steady after eurozone inflation eased, slightly better than expectations. On Monday, ECB President Lagarde said the bank is becoming more optimistic about getting price pressures under control. Investors will be monitoring the Mideast as Israeli troops move into Lebanon, as well as the East Coast & Gulf Coast dockworkers strike, halting half the US ocean shipping for their impact on commodity and equity markets. Elsewhere, oil prices tumbled on the expectation of Libyan oil coming back online, offsetting the risk of a wider conflict in the Middle East. Bitcoin, Gold, & Silver prices all edge higher in early trading. In focus today, CAD and US Global Manufacturing PMI, US ISM Manufacturing PMI, Jolts Job openings, BoE Pill, and Fed's Bostic & Cook will help provide intraday direction to currency markets.

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In other news. Eurozone inflation dips below the target of 2% to 1.8% in September for the first time since 2021. Fed Chair Powell signals the Fed will revert to a quarter-point cut in November. Israel launches its ground invasion of southern Lebanon. US dockworkers strike as business warns of 'paralysis' at ports, which could cost the US economy $5bn a day. Port of Montreal dock workers enter the 2nd day of strike at two terminals. Red lines remain as Starmer & Von der Leyen attempt to reset UK-EU relations. Bowing is said to be considering raising at least $10 billion by selling new stock. Hurricane Helene claims 100 lives across six southern states.

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In currency markets. The USD holds firm as the Fed Chair dials back US interest rate cut expectations. Commodity-based currencies slip as geopolitical concerns and port strikes impact risk sentiment. CNY slips by 0.1%, and Asian currencies weaken by 0.2% on average against the USD. Trading currencies come under pressure, with NZD weakening 0.55%, SEK falling 0.4%, ZAR easing 0.3%, AUD, CHF & JPY down 0.1% against the USD.

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In commodity markets. Oil prices tumbled 1.4%. Natural Gas prices weakened by 1.25%. Gold & Silver prices firmed by 0.45%. Copper & Wheat prices are flat, and Soybean prices fell by 0.8%.

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CAD continues under selling pressure, holding near weekly lows after Fed Chair Powell increased the prospect of widening interest divergence between the Fed and the BoC. Investors see a 65% chance that the Fed will cut by 25 bps in November, while the BoC is expected to cut between 50 bps and 75 bps by November. Weakening oil prices are expected to keep the loonie under pressure, with Wells Fargo adjusting its forecast downward to $65 per barrel in 2025. Intraday CAD & US Manufacturing PMI data and US Jobs report will help provide direction to the loonie.

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EURCAD weakened after eurozone inflation levels dropped below 2%, increasing the prospect of an ECB rate this month.

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EUR weakens through 1.1100 following lower-than-expected eurozone inflation levels. Eurozone annual HICP inflation levels softened to 1.8% in September, surprising markets as it fell through the benchmark 2% for the first time since 2021. ECB Lagarde, testifying before the EU Parliament on Monday, commented that the latest developments strengthened their confidence that inflation will return to its target in a timely manner. "We will take that into account in our next monetary policy meeting in October." Unless we see a negative print from the US Manufacturing PMI & US Jolts, we anticipate the Euro will remain under selling pressure.

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GBPEUR holds steady; both currencies remain sidelined as investors favor the USD following the Fed Chair's less dovish comments.

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GBP extends lower as investors take profits following the Fed Chair's comments and focus on today's US data. The pound loses momentum as expectations of a 50 bps rate cut in November fade and investors take a more optimistic stance on a soft landing for the US. Domestically, the BoE is expected to continue to pause its easing policy as UK inflation pressures remain. We expect the pound to find support between 1.3250/1.3300 as investors await comments from BoE Chief Economist Pill today at the Q3 Confederation of British Industry Economic Growth Broad for signals on interest rates into Q4.