Trump-Zelenskiy meeting, Canadian inflation eyed

Markets observed a modest bid in the US dollar (USD) on Monday, with the USD Index rallying 0.3% and touching the underside of a 50-day simple moving average at 98.07. Early Asia, however, has the buck trading just north of this dynamic value, though off its best levels. Is this the market pricing out some of the possible dovishness from the upcoming Jackson Hole Symposium?

Meanwhile, across US equities, it was a lacklustre session, with equity indices wrapping up pretty much flat, driven by August’s usual doldrums and investors awaiting US Federal Reserve (Fed) Chairman Jerome Powell’s speech at Jackson Hole this Friday. I touch on this in more detail in the week-ahead preview here: https://www.fpmarkets.com/blog/week-ahead-jackson-hole-symposium-on-the-radar/.

Commodities were also somewhat subdued; Spot Gold (XAU/USD) and Spot Silver (XAG/USD) were muted, while WTI Oil (West Texas Intermediate) rallied 0.5%.

White House meeting

All eyes were on the meeting between Ukrainian President Volodymyr Zelenskiy, US President Donald Trump, and Ukraine’s European allies at the White House. Trump outlined plans for a bilateral meeting between Zelenskiy and Russian President Vladimir Putin, which will be followed by a trilateral meeting involving the two leaders and Trump.

Amidst all the niceties and suits, Trump committed to US involvement in providing security guarantees for Ukraine as part of any peace agreement, but noted that a formal ceasefire would not be necessary to negotiate a peace deal. Trump said that ceasefires might be counterproductive, as they allow for rebuilding military capabilities rather than pursuing a genuine resolution. These talks serve as a potential shift in diplomatic strategy, emphasising immediate negotiation over traditional cease-and-desist approaches to conflict resolution.

Although Russia is not the world's largest Oil producer – it is the third-largest – a peace deal would likely bring some Oil market stability. Conversely, expanded sanctions on Russian Oil buyers in the event of Russia and Ukraine failing to secure a deal could create market volatility and potentially drive prices higher due to supply disruptions and reduced buying options.

Canadian CPI inflation data in focus

Source: LSEG data

July Canadian CPI inflation numbers (Consumer Price Index) land today, and while the headline YY print is expected to slightly ease to 1.8% (from 1.9% in June), the Bank of Canada’s (BoC) core measures (CPI median and trim) are forecast to remain steady around 3.1%.

This is not good news for the BoC; hence, as you can see from the charts below, markets are pricing in around just 8 basis points (bps) worth of cuts for its meeting on 17 September, and circa 20 bps for the year-end – investors expect one more rate cut this year. Note that the BoC’s inflation target band is between 1% and 3%, meaning core inflation is a little too high for the central bank to justify easing policy, in my opinion. The cut is likely stemming from concerns surrounding growth from the tariff situation.

Should the core inflation measures dip under the 3.0% level, this could prompt investors to increase rate-cut bets, thus weighing on the Canadian dollar (CAD). I would want to see 2.9% or lower to get CAD shorts excited.

Source: LSEG data

Source: LSEG data

In addition to Canadian inflation numbers, Fed Governor Michelle Bowman will be speaking in a moderated discussion at the Wyoming Blockchain Symposium in Jackson Hole today. You may remember that alongside Fed Governor Christopher Waller, Bowman dissented at the previous Fed meeting, calling for a 25-bp rate cut.