The Morning Update

The USD steadies, oil prices strengthen, while equity markets and US yields are mixed ahead of the US inflation report. The USD holds near 7-month highs against its G10 peers, while the JPY fell to its lowest level since July. Equity markets are mixed as investors remain cautious as concerns increase about President-elect Trump's proposed tariffs, alongside uncertainty heading into today's crucial US inflation report. The US Consumer Price Index is forecasted to increase by 0.2% for the fourth month. Fed's Kashkari said he'll closely watch the US inflation data to determine whether another rate cut is appropriate at the FOMC December meeting. Elsewhere, oil prices strengthened possible oil export curbs from Iran following the US election. Bitcoin prices fell by 2.7% to $87,250, while gold & silver prices both advanced. Today's focus will be the US CPI report, and a flurry of Fed speakers will help provide intraday guidance to currency markets.

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In other news. Trump chooses Musk & Ramaswamy to lead government efficiency efforts. COP29 summit, China urges 'constructive dialogue' on climate change under Trump. Germany's Scholz defies odds as party swings behind re-election bid. US opens missile base in Poland as Trump presidency looks over NATO. Lebanon awaits truce proposals after US envoy expresses hope. Stocks struggle on unease about higher bond yields as the focus shifts to US inflation. Canada Post workers could strike as early as Friday. Canada’s Labor Minister ends coast-to-coast port labor turmoil, forcing unions back to work.

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In currency markets. G10 currencies are steady ahead of today's US inflation report. CNY firms from a 12-week low on a stronger-than-expected PBOC fixing. The USD holds near six-month highs, while the CAD stalls near 2-year lows. CNY strengthens by 0.3%, while Asian currencies are flat on average against the USD. Trading currencies are mixed, with JPY easing 0.25%, AUD, NOK, SEK & CHF down 0.15%, NZD flat, and MXN & ZAR strengthened by 0.45%

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In commodity markets. Oil & silver prices strengthened by 0.8%. Natural Gas prices tumbled by 1.4%. Gold prices firmed by 0.35%. Copper & Soybean prices are flat, while Wheat prices weakened by 0.8%.

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CAD holds near 2-year lows against the USD ahead of today's US inflation report. The expectation is that the US will face increasing inflationary pressures and increased spending that will increase the divergence between the Fed & BoC in 2025. We continue to expect further CAD weakness in Q4 with the potential of retesting 2020 lows to the mid 1.40s against the USD. Intraday, the US inflation report will be a primary driver for the loonie.

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EURCAD holds steady at four-month lows as firmer oil prices provide underlying support for the loonie.

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EUR steadies ahead of 1.0600 ahead of today's US inflation report. The euro holds above 1.0600 as the USD stalls heading into the US inflation report, but political uncertainty in Germany is expected to cap the Euro in the short term. On Tuesday, Barkin said that inflation might be coming under control, though the path remains uncertain and that the core gauge might give a signal that it risks getting struck above the Fed's 2% target.

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GBPEUR holds steady, straddling 1.2000 as the currency pair is sidelined, as the focus remains on the USD following the US election.

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GBP stalls near three-month lows against the USD heading into the US CPI report. The pound remains on the back foot as the domestic inflation level eased in the UK, increasing expectations that the BoE will take a more dovish approach to rates in Q1/25. In the short term, the USD continues to be the primary driver for the pound as uncertainties remain ahead of the 2nd term of President-elect Trump. Intraday, the US inflation report will be the primary driver for markets.