The Morning Update

The USD slips, oil prices weaken, equity markets are down, and US yields ease as earnings dent global risk sentiment. Safe-haven Swiss and JPY strengthen, while commodity currencies weaken on global growth concerns. Global equity markets tumbled, with tech and auto sectors leading the losses following disappointing earnings. US two-year treasuries dropped seven bps, and JPY rallied over 1% amid growing expectations of a Fed rate cut. On Wednesday, former NY Fed President Dudley fueled speculation on Fed cuts following his comments that policymakers should reduce rates soon, preferably at next week's gathering. Investors will be focused on US GDP, which is expected to show annualized Q2 growth of 2%, while initial jobless claims are expected to ease to 238k. Elsewhere, oil prices weakened due to global demand concerns, while Bitcoin, silver, and gold prices tumbled over 1% as risk sentiment faded. Today's focus is on US GDP, durable goods orders, initial jobless claims, PCE prices, pending home sales, and ECB President Lagarde's speech, which will help drive intraday currency direction.

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In other news. Coinbase UK's unit was fined $4.5 million by a British regulator over 'high-risk' customer breaches. Jeep and Dodge-maker Stellantis reports a 48% drop in its first half-year net profit, and Ford shares tumble 11% after a massive earnings miss. Biden says he is 'passing the torch' to save US democracy. Netanyahu urges US to stand with Israel in face of Gaza war protests. Ukrainians strip out Tesla batteries to keep the lights on. China unexpectedly cut the one-year policy rate by the most since 2020. Bank of Canada changes their tune as consumers show they're hurting.

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In currency markets. The JPY continues to rally, testing a fresh six-week high as markets increasingly expect a Fed rate cut in Q3. Commodity currencies are coming under increasing pressure as global risk sentiment sours. China's Yuan is on track for its strongest day against the USD on state bank actions cutting its short-term rates. CNY rallied 0.65%, while Asian currencies strengthened by 0.15% on average against the USD. Trading currencies are mixed, with AUD & MXN tumbling 0.9%, NOK & ZAR falling 0.7%, NZD & SEK weakening 0.45%, CHF strengthened, and JPY rallying 1.1% against USD.

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In commodity markets. Oil and gold prices weakened by 1.75%, Natural Gas prices rallied by 0.95%, silver prices tumbled by 4.3%, copper prices dropped by 0.65%, wheat prices eased by 0.4%, and soybean prices slipped by 0.15%.

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CAD continues under pressure, hitting fresh three-month lows following the BoC rate cut and the dovish comments from Governor Macklem. On Wednesday, the Bank of Canada cut rates for a second straight month, bringing them to 4.5%. Speaking to reporters, BoC Governor Macklem acknowledged that the bank's rate-setting council is increasingly focused on downside risk. Canada's jobless rate sits at 6.4%, higher than its pre-pandemic level, and is almost double for immigrants who've landed in the past five years. We expect the loonie to remain under selling pressure, with expectations growing to 50% that the BoC could cut interest rates again in September.

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EURCAD extends gains, strengthening 2.5% in July, testing a fresh 8-month high following the BoC interest rate cut and dovish BoC Governor Macklem's comments.

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EUR straddles 1.0850 as investors appear sidelined heading into today's US Q2 GDP report. The euro seems somewhat unscathed from the increasing risk-off market sentiment, as investors prefer to exit commodity currencies with the growing prospect of slowing global growth. Domestically, the German IFO Business Climate, Current Assessment, and Expectations all missed, weakening, and increasing expectations of an ECB rate cut in September. Intraday, US GDP will be the primary drive, with investors looking at any weakness supporting a Fed rate cut in September.

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GBPEUR weakens in early trading as investors take profit from monthly gains as global risk-off sentiment increases.

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GBP The pound continues to struggle to breach 1.2900 despite an easing USD as investors. The pound remains within a relatively tight trading range as investors appear sidelined by the lack of domestic economic data releases. We anticipate investors will remain cautious heading into the BoE interest rate decision on August 1st, with markets anticipating just a 45% chance of a rate cut. Today, we expect the pound to find direction from the US GDP report.