The Morning Update

The USD weakens, oil prices extend losses, equity markets rally, and US yields are mixed in tariff U-turn. The USD index faces renewed selling pressure as markets absorb another reversal on US tariffs, with a 90-day reprieve on reciprocal levies for several countries, while increasing tariffs on China. Global equities rallied after the US paused reciprocal tariffs on 75 trading partners that did not retaliate. Meanwhile, in the US, futures faced renewed selling pressure as investors grew more concerned about an escalating trade war with China after the US increased levies to 125% and Beijing responded with 84% reciprocal tariffs. Numerous strategists cautioned investors against buying the dips in equities due to the risks that lie ahead. Citigroup’s global wealth head, Sieg urged clients to stay cautious amid extreme market volatility. Elsewhere, oil prices sank to 3%, Bitcoin weakened, while gold and silver rallied in early trading. In focus today, the US key CPI report, Initial Jobless claims, and BoE Breeden, Feds Goolsbee, Harker, Logan & Bowman’s speeches will help provide direction to currency markets.

In the news. Global stocks soar as Trump backs down from trade war. EU weighs buying more US gas due to Trump tariff pressure. The UN trade chief asks the US to rethink tariffs on the poorest nations. Ukraine says more than 150 Chinese nationals are fighting for Russia. UK and India rush to secure a trade deal after Trump’s tariffs. Australia turns down China’s offer to ‘join hands’ to fight US tariffs. PM Carney vows to make Canada an ‘energy superpower.’ Canadians are cancelling travel plans to the US over fears they could be detained at the border. Apple airlifts 600 tons of iPhones from India 'to beat' Trump tariffs, sources say.

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In currency markets. Amid ongoing tariff uncertainty safe haven JPY & CHF rally in early trading, while the USD extends losses and CNY stalls at 18-year lows. CNY tumbles 1%, while Asian currencies gains by 0.3% on average against the USD. Trading currencies are mixed, with NOK weakening 0.7%. MXN & ZAR down0.15%, SEK up 0.2%, AUD gained 0.8%, JPY, NZD & DKK strengthened 1%, and CHF rallied 1.6% against the USD.

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In commodity markets. Oil prices weakened by 2.5%. Natural Gas prices tumbled 3.3%. Gold prices strengthened 1.8%. Silver prices gained by 1.5%. Copper prices rallied 3.9%. Wheat and Soybean prices firmed by 0.4%.

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CAD rallies to near four-month highs, extending gains in early trading following the US announcement of a 90-day tariff pause. The CAD appreciated by 1.2% against the USD on Wednesday, but as the dust settles, we have observed oil prices come under renewed selling pressure. Meanwhile, the US has not offered any changes to the tariffs already affecting Canada, and Canada continued to push forward with its counter tariffs on Wednesday. In the short term, if you have USD buying needs, the current levels may present a good buying opportunity. Intraday, the US inflation report will be a primary driver for the Loonie today.

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EURCAD recoups some of Wednesday's losses as oil prices come under renewed selling pressure and expectations grow for more aggressive BoC rate easing in 2025.

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EUR strengthens past 1.1050 ahead of the crucial US inflation report. The euro has rallied due to a weakening USD, the pause in US reciprocal tariffs, and improved risk sentiment following the German coalition deal. Amid the escalating Sino-US trade war, the euro benefits as investors move away from the USD. Markets will focus on the important US inflation report today, which is expected to remain mostly stable at 3%, while initial jobless claims are projected to rise to 223k, up from 219k previously.

GBPEUR gives back some of Wednesday’s gains as investors continue reacting to the EU Commissioner's statement that she would prefer a negotiated resolution to the widespread disruption caused by US tariffs.

GBP advances through 1.2900 amid a softening greenback.The pound is capitalizing on improving risk sentiment following the US’s U-turn and pausing of retaliatory tariffs. With the lack of UK economic data releases, investors will be focused on the US inflation report and updates on the escalating US/Sino trade war to guide the pound.

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