The Morning Update

The USD is steady, oil prices eased, equity markets are up, and US yields ease as the focus shifts to the ECB. The USD holds steady after the Fed paused on rates, and saying they were in no rush to cut rates again. The Euro eased in early trading ahead of the ECB's expected rate cut, with expectations of further rate cuts in 2025. Global equities gained as investors digested earnings from mega-techs Microsoft and META, with markets now focusing Apple Inc. later today. "The divergence trade is alive and well with a widening gap between European and US growth expectations that has translated into a much more dovish outlook for the ECB relative to the Fed." said Murray, CEO at EFG Asset Management. Elsewhere, oil prices weaken as markets await clarity on US tariffs on Canada & Mexico. Bitcoin extends gains testing $105k, and as Gold & Silver price both strengthen. In focus today, the ECB interest rate decision, the US GDP, and US Initial Jobless claims to help drive intraday direction to currency markets.

‍

In other news. The Eurozone economy unexpectedly stagnates in Q4/24. Scores feared dead in Washington after a passenger jet collides with US Army helicopter, and crashes into the river. Coffee prices surged to record highs above $3.60 per lb. Record US goods trade deficit seen cutting into Q4/24 GDP growth. UK mortgage lending rises by the most since September 2022. The EU debates return to Russian gas as part of Ukraine peace deal. Tesla shares rise on plans for cheaper EVs, autonomous vehicle. Deutsche Bank posts weaker-than-expected profit and ditches 2025 cost target. Elections Ontario hiring thousands of poll workers ahead of upcoming vote.

‍

In currency markets. JPY extends gains against its G10 peers with the prospect further BoJ hikes. The USD continues to hold on to gains, while Euro slips ahead of the ECB interest rate decision today. CNY is up 0.1%, while Asian currencies slip 0.1% on average against the USD. Trading currencies are mixed, with SEK, NOK, AUD & CHF down 0.2%, ZAR & MXN flat, JPY strengthens 0.5% against the USD.

‍

In commodity markets. Oil & wheat prices eased by 0.4%, Natural Gas and Gold prices firmed by 0.8%. Silver prices rallied by 2.1%. Copper prices gained by 0.4%, and Soybean prices weakened by 0.75%.

‍

CAD remains under pressure, holding above 1.4400 following the BoC interest rate cut, and the lingering threat of US tariffs as early as Saturday. The Bank of Canada reduced its key policy rate by 25 bps to 3%, cutting its growth forecasts and warning Canadians that a tariff war could cause significant economic damage to Canada. The US two-year spread against the CAD widens to 141 bps, the diverging interest rates will put additional pressure on the loonie with investors expected to favour the USD.

‍

EURCAD slips in early trading as investors await the ECB interest rate decision and the ECB statement for direction.

‍

EUR slips below 1.0400 ahead of the ECB rate decision. The euro remains on the back foot after weaker-than-expected German and Eurozone preliminary GDP data, and the prospect a 25 bps ECB rate cut today. The eurozone economy GDP stagnated in Q4/24, both the German & French economies contracting, reinforcing expectations for multiple ECB rate cuts. If EBC President Lagarde adopts a dovish tone in her statement, acknowledging the worsening growth outlook, the Euro could come under renewed selling pressure.

‍

GBPEUR edges higher ahead of the ECB rate decision and statement.

‍

GBP holds above 1.2400 ahead of key US GDP and Jobs report. The pound remains relatively resilient following the Feds pause in interest rate cuts and the less dovish Fed statement. Investors appear sidelined ahead of the US GDP report and the BoE interest rate decision in February. The US GDP is expected to grow y/y Q4 to 2.6%, down from 3.1% previously. A weaker than expected GDP report could weigh on the USD and support the pound.