CAD
The loonie wilted in the face of a rampant dollar on Thursday, with USDCAD rising 0.6%. That leaves the pair trading above 1.39 this morning, with April jobs data yet to navigate before week-end. Economist consensus projects a further loosening in the labour market, looking for a 0.1pp uptick in the unemployment rate, taking it to 6.8%. Similarly, the economy is expected to have added just 5.0k jobs, after shedding -32.6k in March, while wage growth is also seen cooling from 3.5% to 3.3%. If realised, this would represent a broad-based slowdown, in line with our house view. As we see it, underlying economic weakness, combined with tariff-related disruption, should both be weighing on employment conditions. It is also a set of prints that we think would favour a rate cut from the BoC in June – currently priced as a coin toss by markets. That leaves loonie risks tilted to the downside today, with traders likely to be eyeing 1.40 for USDCAD in the event of a downside miss.
USD
The dollar made some significant gains through Thursday trading, with the DXY climbing eight-tenths of a percent. In fact, the index charted overnight highs last seen in the first half of April, when markets were still digesting the fallout from President Trump’s botched tariff announcements. It was an unwind of some of those tariff barriers that helped propel the dollar upwards yesterday, specifically, the announcement of a framework agreement between the US and UK yesterday afternoon. Granted, as far as trade deals go, this was about as thin as they come. But from a US perspective, it was also clearly a win. Crucially for markets, this is a concrete sign that tariffs can be rolled back, and hopefully, that the deal will be the first of many. That read-through helped weigh on Fed easing expectations, already trading under pressure, further compounding the upside support for the greenback. Today, there is no US data of note set to be published, but there is a thicket of Fed speakers to keep an eye on. And, if we see Chair Powell’s comments from Wednesday echoed, as seems likely, that should prompt further upside for the dollar.
EUR
A quiet end to the week for the euro should see the single currency giving up further ground to both the dollar and sterling. A light data calendar leaves just a handful of ECB speakers to entertain markets, and we are sceptical that they have much new to offer markets at this juncture. That should ensure that price action is largely dictated on the other side of euro crosses ahead of the weekend. And given our expectations for central bank hawkishness out of both the UK and US, we think this is a recipe for markets to continue paring back some stretched euro length.
GBP
A busy day for sterling traders on Thursday saw a mixed session for the pound. On the one hand, GBPEUR rallied, climbing half a percent over the course of the day, and briefly breaking above 1.18. On the other GBPUSD moved in the opposite direction, and is now trading in the mid-1.32s. Underpinning this divergent price action is the US-UK trade agreement announced yesterday afternoon. While in our view the implications were clearly positive for the US, for the UK, these are somewhat more nuanced. On a relative basis, the UK is in a better position than before this agreement. On an absolute basis, tariff barriers are still higher than before Trump took office. The agreement also managed to overshadow the BoE, with the MPC delivering a rate decision yesterday afternoon. While the MPC cut rates, this was accompanied by guidance that proved somewhat more hawkish than expected – seeing a pullback in easing expectations, with the odds of a June rate cut slashed. It is this that should be the focus today too, with Governor Bailey set to speak at 09:40 BST this morning, followed by Chief Economist Huw Pill just after lunch. Our expectations are for both to continue leaning hawkish, especially the latter, given his dissenting vote for no change in rates. That should keep the pound supported today versus the dollar, leaving risks pointed to the upside against the euro once again.
This content was originally published by our partners at Monex Canada.