The Morning Update

The USD eases, oil prices are steady, equity markets are down, and US yields rise as risk sentiment wanes. The USD eased in early trading after testing multi-year highs on Wednesday after the Fed signalled a slower pace of rate cuts in 2025. JPY tumbled following the Bank of Japan's decision to keep borrowing rates steady, raising doubt about a January hike. US DOW futures are steady after the index dropped 1,100 points, in the 10th straight loss. European equity markets mirrored losses in Asia following Wednesday's hawkish pivot by the Fed, causing money markets to price in fewer than two rate cuts in 2025. Risk-on sentiment eased after the Fed scaled back the number of cuts it sees in 2025 to two, and Chair Powell said future easing would require fresh progress on inflation. Elsewhere, Bitcoin firmed by 0.5% back to $101.7K, while gold and silver prices weakened in early trading. In focus today, The Bank of England Interest Rate Decision, US GDP, US Initial Jobless Claims and Existing Home Sales will help drive intraday direction to currency markets.

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In other news. Amazon workers will strike at multiple US warehouses during the busy holiday season. The US government nears shutdown after Trump attacks the funding bill. China is rapidly nuclear forces, says the Pentagon. New Zealand sinks into recession, and more rate cuts are coming. EU leaders to send 'clear message' to Trump on Ukraine, to debate US ties. Israel keeps up Gaza bombardment as ceasefire talks intensify. Canada PM Trudeau reflecting on criticism amid a leadership crisis. A report finds US efforts to curb China's and Russia's access to advanced computer chips 'inadequate.'

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In currency markets. The South Korean Won hits a 15-year low as hawkish Fed and domestic politics weigh on the currency. JPY tumbles nearly 1 1/2% as Japan keeps rates on hold, the pound strengthens ahead of the BoE rate decision, and the CNY holds at 13-month lows. CNY eased 0.15%, while Asian currencies firmed by 0.15% on average against the USD. Trading currencies are mixed, with JPY tumbling 1.4%, MXN eased by 0.2%, AUD & ZAR firmed by 0.4%, NZD, NOK & CHF strengthened by 0.6%, and SEK rallied 0.9% against the USD.

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In commodity markets. Oil prices are flat. Natural Gas prices rally 2%. Gold prices are down 0.7%. Silver prices tumbled by 2.2%. Copper prices weakened by 1.4%. Wheat prices fell by 1.1%, and Soybean prices firmed by 0.2%.

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CAD rebounds from near 5-year lows of 1.4467 as currency markets consolidate after Wednesday's meltdown, following Fed Chair Powell's hawkish comments, which rallied the USD. We continue to expect the loonie to remain under selling pressure into Q1/25 due to the threat of US tariffs, Canadian political uncertainty, and the prospect of increasing divergence of interest rates between the BoC and the Fed in 2025. Our bias remains to buy USD on any dips, with the potential to see CAD rates test 1.4667, last seen in March 2020.

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EURCAD edges higher in early trading as weakening commodity prices capped the loonie; month to date, the loonie is down 1% against the Euro.

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EUR recoups some lost ground to the USD but remains capped at 1.0425. The euro claws back some of Wednesday's losses, which saw the single currency tumble to 1.0343, near multi-year lows. The euro is expected to remain under pressure with ongoing political uncertainty in France & Germany, the threat of US tariffs, expectations of diverging interest rates between the ECB & the Fed, as well as sluggish economic growth within the EU. Technically, a break of 1.0333 could open a move to parity next. Intraday, US GDP & Jobs data will help drive the direction for the euro.

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GBPEUR continues to edge higher, up 1% in December, with the increasing expectation that the BoE will keep interest on hold today.

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GBP rebounds against the USD ahead of the Bank of England rate decision. The pound finds support in early trading as the Bank of England is widely expected to keep interest rates on hold at its policy meeting today. UK data earlier in the week saw UK wages increase in the three months to October, and domestic inflation levels rose to 2.6% in November, which combined is expected to pressure the BoE to keep domestic interest rates on hold today. Similar to the Fed, the BoE is expected to cut just two times in 2025, which should help provide underlying support for the pound. Intraday, the BoE rate decision and Statement will drive the direction of the pound.

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