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CAD
The loonie’s Wednesday whipsaw extended into yesterday, with USDCAD probing back toward 1.37 as the late-session reversal in oil proved insufficient to offset a firmer dollar and the unwinding of the Iran “hope trade” that we had thought looked overdone. Today, the Canadian April employment report is the main domestic event coming up. Consensus looks for just 10k jobs added after March’s 14k gain, with the unemployment rate steady at 6.7%, though as we flagged yesterday, we see risks skewed to the downside on one or both metrics. A soft print would undermine residual expectations for further Bank of Canada tightening and likely send USDCAD back toward the upper end of its recent range. With US payrolls landing simultaneously, a particularly volatile open in North America looks likely. Beyond the data, the loonie remains caught between competing pulls from oil prices and broader risk sentiment, both of which hinge on Tehran’s awaited response to the US proposal.
USD
The dollar’s mid-week swoon was largely retraced yesterday, validating the cautious view we set out in Thursday’s morning report. Having slipped sharply on Wednesday on the back of Trump’s “great progress” remarks on Iran and a suspected MoF intervention episode, the DXY initially extended losses below 98 in early European trading, before reversing course as the day progressed. Hawkish remarks from the Fed’s Collins and Hammack provided a tailwind, while comments from Iranian Expediency Council member Rezaei – effectively rebuffing the US proposal and demanding reparations – cooled the peace-deal narrative. Initial jobless claims at 200k (consensus 205k) added to the bid. Today, all eyes are on April nonfarm payrolls. Consensus looks for a modest 65k print after March’s 178k, with the unemployment rate seen steady at 4.3%. Given our view that the dollar entered May looking cheap relative to the geopolitical and rates backdrop, we expect a print in the ballpark of consensus to allow the greenback to consolidate yesterday’s gains heading into the weekend, with Middle East headlines continuing to set the tone.
EUR
EURUSD spent yesterday afternoon on the back foot as the dollar firmed, drifting toward 1.17 overnight, aligning with our expectation that the single currency would trade defensively into payrolls. ECB speakers on the docket – including Lagarde and Lane – stuck to a familiar script of cautious patience. The Norges Bank’s surprise 25bp hike to 4.25% provided some near-term lift to NOK and crosses, but as we noted in our reaction piece, this is best read as a pull-forward of tightening already embedded in the March framework rather than a fresh hawkish escalation, with limited spillover for the single currency. With the eurozone calendar bare today, EURUSD will take its cue from US payrolls and any further developments around Tehran’s response to the US memorandum. We continue to see little reason for sustained euro upside while energy prices remain elevated and the eurozone growth backdrop softens, and look for a defensive bias to persist into the weekend.
GBP
Sterling’s modest Wednesday rebound through 1.36 unwound yesterday, with GBPUSD slipping back into the mid-1.35s as risk appetite turned and the dollar firmed late in the session. As we flagged in our week-ahead briefing, yesterday’s local elections always posed an asymmetric risk for the pound; with results declaring through this morning and projections pointing to substantial Labour losses, any further internal Labour Party strife around Prime Minister Starmer’s leadership represents a clear downside catalyst. The political channel will need to be weighed against the dominant external driver: with the Middle East conflict still keeping energy costs elevated, the UK’s terms-of-trade remain unhelpful, and we continue to doubt sterling’s ability to sustain rallies against this backdrop. Today’s UK calendar is otherwise quiet, leaving GBPUSD at the mercy of US payrolls and the political headlines. Looking further out, next week’s UK GDP and labour market figures loom as the next domestic test. Absent meaningful Gulf de-escalation or a sharp downside payrolls miss, upside for the pound should remain capped.