The Morning Update

The USD remained steady, oil prices declined, equity markets rose, and US yields increased ahead of the US inflation report and the final day of Fed Chair Powell’s testimony on Capitol Hill. The USD maintained stability following Powell’s testimony, during which he emphasized that there was no urgency to cut interest rates. Investors redirected their focus to the US inflation report, with inflation levels anticipated to remain at 2.9% y/y in January. Global equities edged higher as investors assessed the latest earnings news, with attention on the US inflation report for clues about the outlook of US interest rates. Money markets continue to fully price in just 25 bps rate cut by the Fed in 2025 by September.Elsewhere, oil prices fall on rising US crude stocks, Bitcoin firms to $96k, while Gold & Silver prices weaken. In focus today, the US CPI report, Fed’s Chair Powell testifies, BoE’s Green Speech and the US Monthly Budget Statement will help provide direction to currency markets today.

‍

News Headlines. India’s inflation cools to a lower-than-expected 4.31% in January. Fintech unicorn Zepz to lay off 20% of its global workforce. China's tech stocks enter bull market after DeepSeek breakthrough. The EU weighs temporary gas price cap to counter diverging costs with US. Russian defence spending exceeds all Europe combined, study finds. Germany's struggle to house refugees fuels election debate. Italy's woes deepen as industry output plunges in December. Trump's justice department hits the brakes on anti-corruption enforcement. The White House says 25% tariffs on steel and aluminum would stack on other 25% tariffs.

‍

In currency markets. Currency markets are mostly steady ahead of the US inflation report, while the JPY weakens on the prospect of paused US rate cuts, and the INR struggles on the prospect of further rate cuts. CNY & Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY & NOK weakening 0.5%, AUD & NZD fell 0.25%, SEK down 0.15%, MXN flat, CHF & ZAR strengthened 0.3% against USD.

‍

In commodity markets. Oil prices tumbled by 1.3%. Natural Gas & Gold prices weakened by 0.9%. Silver prices fell 0.6%. Copper prices flat, while Wheat prices strengthened by 0.8%, and Soybean prices dropped by 0.4%.

‍

CAD continues to trade within a narrow range, even with the decline in commodity prices and ongoing threats of U.S. tariffs. Currently, the U.S. is deliberating two proposals: a global tariff of 25 percent on steel and aluminum, effective March 12, and it has also paused, until March 4, discussions about an economy-wide 25 percent tariff on Canada and Mexico while negotiating border-security agreements with both countries. In intraday trading, the U.S. inflation report will help guide the direction of the loonie.

‍

EURCAD extends gains in early trading as commodity prices ease and the ongoing threat of US tariffs is keeping the loonie on the back foot.

‍

EUR edges through 1.0350 ahead of the US inflation report. The euro edges higher despite the growing threat of a US/EU trade war with the the US planning reciprocal tariffs. Investors are on the sidelines focusing the Fed Chair Powell's testimony and the US inflation report to provide direction to the single currency. The US CPI date for January, markets are expecting core CPI to rise 0.3% m/m. A print above the market consensus could negatively risk sentiment and boost the USD.

‍

GBPEUR stalls, straddling 1.2000 despite growing concerns over UK demand outlook.

‍

GBP holds above 1.2450 ahead of the US CPI & Fed Chair testimony. The pound strengthened off weekly lows despite concerns for the economy which is expected to have contracted by 0.1% in Q4/24. On Tuesday MPC member Mann said that she is worried about the UK demand outlook and sees the need to accommodate financial conditions. Focus will be on UK GDP report released on Thursday, which will be a primary driver for the pound. Intraday, the US inflation report and related comments from the Fed Chair's testimony will give guidance to the pound today.