The Morning Update

The USD weakened, oil prices eased, equity markets were mixed, and US yields rose as markets returned and risk sentiment improved. The USD weakened from its two-year highs, while CAD firmed on speculation that PM Trudeau would announce his resignation before the national caucus meeting on Wednesday. European equity markets advanced, supported by the tech sector, and US futures gained, pointing to a second session of gains after Friday's gains snapped their longest losing streak since April. US Treasury yields rose, with the US 30-year bond yield hitting its highest level since 2023. In China, services sector activity expanded at the fastest pace since May, signalling improving domestic demand after Beijing's stimulus push. Elsewhere, oil prices eased from 3-month highs, Bitcoin firms to $98.7k, while gold prices eased after Goldman Sachs said it no longer sees the precious metal reaching $3k per ounce in 2025. In focus today, the German inflation report, the US S&P Global Composite & Services PMI, and the Feds Cook speech will help provide intraday direction to currency markets.

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In other news. PM Trudeau is expected to announce his exit as party leader before a national caucus meeting on Wednesday. South Korea crisis mounts as the clock ticks on the arrest warrant for President Yoon. Biden will ban offshore oil and gas drilling in vast areas ahead of Trump's term. The eurozone economy ended 2024 in a precarious state, PMI shows. Exodus by Wall Street banks from climate group worries advocates. After a year of a big corruption crackdown, China promises more probes and retribution. Hamas and Israel wrangle over talks as Israeli strikes in Gaza intensify.

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In currency news. G10 currencies advance amid improving risk sentiment, while the USD slipped from 2-year highs. In Asia, the Chinese yuan dropped to its lowest level in 16 months, and the JPY slipped on wavering BoJ rate hike expectations. CNY eases by 0.1%, while Asian currencies firm by 0.1% on average against the USD. Trading currencies are mixed, with JPY weakening by 0.5%, NOK & SEK flat, MXN & CHF firms by 0.2%, and ZAR, NZD & AUD strengthening by 0.4% against the USD.

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In commodity markets, Oil prices eased by 0.1%. Natural Gas prices rallied by 8%. Gold prices eased by 0.3%. Silver prices gained by 0.55%. Copper prices are flat. Wheat prices firmed by 0.75%, and Soybean prices strengthened by 1%.

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CAD strengthens in early trading amid a weakening USD and on increasing expectations that PM Trudeau will resign ahead of Wednesday's national caucus meeting. We expect the CAD strength to be short-lived, and our bias would be to buy USD on dips. With the lack of any high-tier US or CAD data releases today, the focus will be on political developments within Canada to help drive direction for the loonie.

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EURCAD gained in early trading after the eurozone services PMI figures for December were revised higher.

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EUR rallied in early trading amid a softer USD and positive trade data. Euro rallied to retest 1.0400 levels in early trading after better-than-expected eurozone services PMI data for December and optimism ahead of the German inflation report later today. The German inflation numbers are expected to gain to 2.4% year over year in December from 2.2% y/y in November. The higher inflation levels could cause the ECB to pause its rate policy, providing support to the Euro.

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GBPEUR saw a quiet start to trading for the cross, with GBP easing slightly ahead of the German inflation report.

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GBP strengthens, extending its rebound against the USD towards 1.2550. The improving risk-on sentiment helped the pound rally against the USD, bouncing off multi-month lows and breaching through 1.2500 in early trading. The rally is a combination of the pound being overly sold in thin holiday markets and the softening of the USD as investors exit safe-haven trades. We expect markets to hold within current levels with the lack of UK or US data releases today, with markets preferring to be sidelined ahead of Tuesday's Jolts Job data and ISM Services PMI report.