The Morning Update

The USD is weakening, oil prices are steady, equity markets are up, and US yields are down ahead of the key US inflation report. The USD Index fell for a second day, testing a one-month low, while the S&P 500 rallied through 5600 with its 37th record close of 2024. Fed Chair Powell told Congress Wednesday that the Fed doesn't need inflation below 2% before cutting rates and noted that the labor market has cooled "pretty significantly." Investors will be focused on today's US core CPI, which is expected to rise 0.2% in June. "June CPI report looks to be another 'very good' report that should boost the FOMC's confidence about the inflation trajectory," said Anna Wong at Bloomberg Economics. "That should set the stage for the Fed to start cutting rates in September." Elsewhere, oil edged higher for a 2nd day, Bitcoin strengthened +1%, and Gold prices extended gains for a 3rd day. In focus today, US CPI, Initial Jobless Claims, and the President Biden press conference will help provide intraday direction to currency markets.

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In other news. Democratic donors warn of campaign funds 'drying up' as Biden holds on. Legal services say that Hungry's Orban trip to Moscow was in breach of EU treaties. BHP suspends Western Australia nickel operations amid supply glut. China rejects NATO's accusations of supporting Russia's war in Ukraine. Ukraine bolsters its army ranks with convicts. The EU and Apple settle long-running 'tap-and-go' antitrust probe. The UK economy grows at double the forecast pace. The UK launches new rules for listings in a bid to boost growth for London's stock exchange. Officials say sixty years of road salt have destroyed Ottawa's Alexandra Bridge.  Canada plans to buy submarines, inching closer to NATO's defense target.

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In currency markets. GBP hits 4-month highs on strong growth data and hawkish BoE comments. The USD index slips to a one-month low on dovish Fed comments, with expectations growing for a September Fed rate cut. Uganda's central bank has started buying locally produced gold to support its forex reserves. CNY and Asian currencies gain 0.15% on average against the USD. Trading currencies are mixed, with NOK tumbling 0.7%, CHF weakening 0.25%, JPY, SEK, NZD & AUD up 0.1%, MXN gaining 0.25%, and ZAR strengthening 0.35% against USD.

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In commodity markets. Oil & Natural Gas prices gained by 0.2%. Gold prices firmed by 0.4%. Silver & Soybean prices strengthened by 0.9%. Wheat prices rallied by 1.5%, and Copper prices eased by 0.3%.

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CAD edges higher on the back of dovish Fed comments and strengthening commodity prices. The lack of any CAD high-tier economic releases this week leaves the Loonie at the mercy of US economic releases to drive intraday direction. We continue to expect CAD strengthening to remain capped heading into the July 24th Bank of Canada interest rate decision. With the prospect of a BoC cut in July and September and the increasing interest differential against the USD, we anticipate CAD has the potential to retest 1.3900 in Q3.

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EURCAD continues to strengthen to near two-month highs, with the prospect of two rate cuts in Q3 by the BoC. Meanwhile, the ECB is expected to keep domestic interest rates on hold in Q3.

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EUR strengthens towards 1.0850 amid USD weakness ahead of US CPI. The euro edged higher following dovish comments from the Fed Chairman at his testimony in front of Congress on Wednesday. In the eurozone, the German inflation data came in as expected, holding at 2.5% year over year in June. Investors will be focused on today's US CPI & Initial jobless changes for more clues that US inflation concerns are easing. Currently, markets are pricing in a 70% chance of a Fed rate cut in September.

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GBPEUR continues to edge higher, testing a fresh six-week high against the euro on solid GDP growth, which came out double the expected forecast at 0.4%.

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GBP strengthens to a four-month high after solid growth data, coupled with dovish Fed comments. The pound is becoming the darling of investors with a new stable/majority government, a hawkish BoE, coupled with an improving global risk-on sentiment. Goldman says to buy the pound with the currency set to reach a one-year high, expecting the pound to hit $1.30 before the end of July. Domestically, UK GDP m/m May beat expectations at 0.4% vs expected at 0.2%. While manufacturing production held steady, industrial production slipped below expectations. Intraday, the US CPI will be today's primary driver for the pound's direction.