The Morning Update

The USD holds steady, oil prices firm, equity markets gain, and US yields ease heading into the second day of Fed testimony. Currency markets remain stable amid a cautious mood, and US yields slipped to near three-month lows. Equity markets strengthened on the prospect of a Fed September rate cut; the S&P 500 posted a 6th day of gains, hitting its 36th record in 2024, and the Nasdaq 100 also hit a record on Tuesday. Investors remain focused on the second day of Fed Chair Powell delivering the semi-annual Monetary Policy Report and his response to questions before the Congressional House Financial Services Committee. Yesterday, Fed Chair Powell flagged rising risks to jobs but avoided rate-cut timing, while swap traders project a 73% chance of a September rate cut. Elsewhere, oil prices rebounded after early losses on China demand concerns; Bitcoin extended gains, strengthening 1.4%, while copper and iron ore prices declined. In focus today, Fed Chair Powell's testimony, OPEC monthly market report, speeches from BoE Pill & Mann, and Fed's Bowman, Goolsbee, & Cook will help drive intraday direction to currency markets.

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In other news, Microsoft and Apple avoid OpenAI's board as US scrutiny grows. Volkswagen shares slip as it considers Brussels' plan to close due to weak EV demand. A survey finds that rising stress at the ECB puts almost 40% of staff at risk of burnout. China's consumer price growth weakened ahead of the Communist Party's economic meeting. The Canadian Tory leader widens the gap over Trudeau on the economy in a Nano poll. Macron's centrist is off to a rocky start in coalition talks. The US is to send another Patriot air defense missile battery to Ukraine. Europe's newest rocket launches into space. Keir Starmer plans 'road map' for UK to hit higher defense spending goal.

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In currency markets. The USD holds steady amid Fed Chair Powell's cautious tone. The NZD comes under pressure on the RBNZ's dovish tones. After soft domestic inflation data, CNY slips to near 8-month lows against the USD. CNY slips 0.1%, while Asian currencies are up 0.1% on average against the USD. Trading currencies are mixed with NOK tumbling 1.3%, NZD weakening 0.9%, JPY slipping 0.2%, AUD down 0.1%, CHF flat, SEK up 0.1%, ZAR firmed 0.25%, and MXN rallying 0.65% against the USD.

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In commodity markets. Oil prices are up by 0.3%. Natural Gas prices rallied 1.2%. Gold & Silver prices firmed by 0.5%. Copper prices slipped 0.2%. Wheat prices weakened by 0.6%, and Soybean prices are flat.

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CAD held steady ahead of the Fed Chair's second day of testimony before Congress, while domestically, there are no high-tier economic releases to help provide direction to the loonie. We expect the loonie's upside will be capped in the short term in the run-up to the July 24th Bank of Canada's, with markets forecasting a 0.25% rate cut to 4.75%, then September to 4.5%, and a third in January 2025 to 4.25%. Intraday, if Fed Chair Powell takes a dovish tone in today's testimony, we could see a rebound towards 1.3700.

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EURCAD continues to hold steady as investors continue to process France's coalition government, and caution ahead of the German inflation report on Thursday.

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EUR remains flatlined at 1.0820 amid a cautious mood ahead of the second day of Fed testimony. The euro continues to trade within a tight trading range as investors remain cautious about the prospect of a Fed Rate cut in September. Uncertainty in France and the risk of an impasse in the French parliament keep investors wary. Markets have reduced the odds of a Fed rate cut in September slightly to 73% from 76% following yesterday's 1st day of testimony. We expect the euro to maintain its current range, with investors shifting their focus to Thursday's US & German inflation reports.

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GBPEUR continues to edge towards a fresh four-week high, with GBP up 2.65% year to date. Markets are comfortable with the new UK government and hawkish comments from the BoE.

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GBP holds above 1.2800 ahead of the Fed testimony and BoE and Fed speakers. The pound is finding some underlying support following the clear majority of the Labour Party last week and the prospect of higher domestic rates for longer. Senior BoE policymaker Haskel said yesterday that a tight jobs market means inflation will likely be higher than the 2% target 'for quite some time.' Haskel said, "I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably." Investor focus will be on Thursday's UK GDP and Manufacturing on Thursday to help provide direction to the pound.