The Morning Update

The USD strengthened overnight, oil prices hedge lower while equities index rose, and treasury yields are trade lower. After last weeks stronger than expected employment figures, market participants are eagerly awaiting US inflation figures with the release of the PPI today and CPI tomorrow. It’s important to note that traders are pricing a 29bps of easing in 2025 less than the 50bps that the Fed projected in December.

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In other news. Talks are resuming in Qatar on a deal for a ceasefire in Gaza and the release of hostages, with signs that Israel and Hamas are close to an agreement. Qatari foreign minister says that there will not have a deal done today but, the two sides are closer than at any other time to reaching a deal. Ukraine strikes Russia in ‘major’ drone and missile attack damaging factories in Southern Russia.

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In currency markets. The USD is mixed today ahead of the US inflation figures. The CNY strengthen slightly against the USD (0.07%), while the JPY (0.39%) THB (0.32%) and MYR 0.17%) have weakened. Once again, the trading currencies are mixed with the ZAR strengthening 0.50% against the USD and the MXN weakening 0.21%

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In commodity markets. Oil prices retreat from a 3-month high but continue to have underlying strength on the back of the recent US sanctions on Russian fuel leading to a tightening global supply. Gold recovers after yesterday’s decline as sources from Trump’s administration disclosed a gradual tariffs introduction to avoid an inflation shock. Copper remains unchanged. Agricultural commodities are slightly off with Wheat down 0.30% and Soybean down 0.05%.

Current level USD Index                           109.63             Up 0.06%

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The USD/CAD saw some profit taking pushing the USD below the 1.4400 handle. Last weeks stronger than expected employment figure coupled with the recent move up in oil price are supporting the CAD. The expectation of a BoC rate cut at the January meeting declined to 61% from 70%.

Current level USDCAD                              1.4381                Up 0.12%

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After a 6-day down move, the EURCAD has rebounded from its recent low of 1.4670. However, this rebound may be short-lived with the ECB supporting further easing while CAD’s stronger than expected employment figures are reducing the chances of a BoC ease at their January meeting.

Current level EURCAD                               1.4751                 Up 0.08%

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The EUR/USD rebounded from a two-year low as traders take profit ahead of US inflation figures. ECB officials continue to support market expectations of further policy-easing, which stems from a weak Eurozone economic outlook and fears that US President-elect Donald Trump could slap hefty tariff hikes. Expectations are for the ECB to cut interest rates by 25 bps at the next four meetings.

Current level EURUSD                               1.0258                 Down 0.05%

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The GBP/EUR remains near a 2-month low set earlier this week. Fear of stagflation and fiscal concerns are weighing on the GBP. On the other hand, the EUR struggles to gain any meaningful positive traction on the back of the ECB’s dovish bias and concerns about the faltering Eurozone economy.

Current level GBP/EUR               1.1875 (.8423)                    Up 0.39%    

The GBP/USD rebounded from Monday’s 15-month low fueled by reports that President-elect Trump’s economic team considering a gradual increase in import tariffs. The upside remains limited as concerns over UK stagflation and higher financing cost persists.

Current level GBP/USD                               1.2183                 Down 0.38%

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