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CAD
Thursday saw the loonie trading heavily yet again, with USDCAD pushing back above 1.37 as the firmer dollar overwhelmed a relatively stable oil backdrop, with WTI holding near $100 and Brent around $105. Today’s Canadian data calendar brings March manufacturing sales at 13:30 BST, though these are unlikely to alter the broader narrative for the loonie. With residual Bank of Canada tightening expectations now largely wrung out following last Friday’s soft jobs print, domestic catalysts are unlikely to drive the pair in the near term. The wildcard is the Trump-Xi summit wrap-up: should Xi’s offer to help mediate with Tehran translate into a credible peace path, oil could come under sustained pressure, opening the door to a test of USDCAD at the upper end of its recent range unless risk conditions can normalise first.
USD
The dollar’s winning streak extended into a fourth session yesterday, with the DXY pressing higher towards 99 as mixed US data prints did little to slow the move. April retail sales rose 0.5% MoM in line with consensus, though a deceleration from March’s 1.7% gain and a softer 0.5% reading on the control group hinted at fading underlying momentum. Initial jobless claims at 211k versus 205k consensus added a small dovish note, but the broader narrative of “Fed on hold for longer”, which we have argued for in recent weeks, remained firmly intact. Today is the symbolic handover at the Fed, with Powell’s final day as Chair before Kevin Warsh assumes the role. The data docket brings May Empire State manufacturing at 13:30 BST and April industrial production at 14:15 BST, though neither is likely to prove a big market mover. Trump-Xi summit headlines, including Xi’s reported offer to help broker an Iran resolution, will run alongside.
EUR
EURUSD ground lower again on Thursday, slipping further into the 1.16s as the combination of a firmer dollar and a discouraging eurozone data backdrop continued to weigh, helped at the margin by spillovers from sterling, with UK political risk increasingly elevated. With no top-tier euro area releases on the calendar today, EURUSD direction will once again be set by the dollar leg, and by events outside the bloc. The reported offer from Xi to help mediate between Washington and Tehran is, in principle, a positive for the euro through the oil channel, given that any reopening of the Strait of Hormuz would disproportionately benefit energy-importing G10 peers. However, we remain wary of placing too much weight on optimism here, as we set out in our May FX forecasts and morning reports throughout the month: previous episodes of premature peace-deal enthusiasm have invariably faded. The path of least resistance remains a slow grind lower for EURUSD.
GBP
Sterling endured another rough session yesterday, with GBPUSD slipping below 1.34 overnight as the UK political backdrop deteriorated further. Wes Streeting’s resignation as Health Secretary, citing a loss of confidence in Sir Keir Starmer, paves the way for a formal leadership contest. The simultaneous reports of Josh Simons stepping aside to allow Greater Manchester Mayor Andy Burnham a route back to Parliament further complicates the picture. Burnham is widely seen as the favourite in any leadership race, provided he can win a by-election and return to parliament, which is far from a done deal in our view. Still, the increased risk of a Burnham premiership, and presumably higher spending, paid for by increased taxes and borrowing, is weighing on both Gilts and the pound. Today’s UK docket is empty, leaving sterling at the mercy of political headlines and the broader dollar tone. With gilt yields still elevated, the 10-year above 5% and long-end probing 1998 highs, we continue to doubt the pound’s ability to sustain any rallies.