CAD
While tomorrow’s jobs data is the main domestic data release of the week, today, Governor Macklem should capture Canadian headlines. The Governor is set to deliver video remarks to a BIS event, and as such, will have the opportunity to touch on recent tariff developments. This is of course the dynamic that is front of mind for loonie traders right now. We see a reasonable prospect that Macklem highlights the downside to Canadian growth stemming from uncertainty, even if the country ultimately avoids tariffs. This alone would warrant the loonie trading softer at the margin, in our view, and should help USDCAD to climb back toward 1.44 if realised.
USD
As we noted yesterday morning, hawkish Fedspeak should put a floor under the dollar around current levels for the time being. After all, there is now minimal tariff risk premia priced, US growth remains solid, and we see little scope for the Fed to ease more than twice this year, in line with market-implied odds. This point was largely borne out on Wednesday too. Comments from the Fed’s Barkin stood out, emphasizing a “wait and see” approach to further policy easing. As such, it is unsurprising to see the DXY index trading a little stronger this morning, having bottomed out around 107.5. We doubt that today’s challenger job cuts and initial jobless claims data can do much to alter this trend. But, there is a possibility that tomorrow’s NFP release could shift Fed expectations meaningfully in the event of a downside miss. Such an outcome forms the main downside risks to the dollar short term, albeit we continue to look for a print in line with expectations, with this set to keep the dollar trading sideways for now.
EUR
After nudging above 1.04 yesterday morning, EURUSD has dipped back through early trading. While the move lower for the pair lacks an obvious catalyst, it does leave the euro trading at levels we see as better reflecting underlying risks. Granted, the ECB’s wage tracker released yesterday afternoon looked a little soft at first glance, but we are inclined to view the details as somewhat stronger. Rather, as we see it, the EU looks set to be the next economy in Trump’s crosshairs, and that warrants a discount to single currency valuations. Retail sales and trade data are top of the docket domestically to end the week, but it looks likely that events in the US should be the key driver for EURUSD once again, with US jobs tomorrow top of mind.
GBP
The BoE is set to be centre of attention today. The MPC is widely expected to cut, taking Bank Rate to 4.50%. The real point of interest for markets, however, is likely to be found in the accompanying MPR, and in Governor Bailey’s press conference. We suspect both will continue steering toward 100bp of 2025 easing in total, slightly more than is priced by markets, but likely not enough to see a sharp selloff for sterling. More relevant will be any assessment of tariff risks, and we suspect these could do much to highlight the UK’s relative insulation from US import levies. This leaves risks skewed toward a marginally stronger pound on balance, but we would not be surprised if the FX response is muted either way given the lack of scope for a surprise.
This content was originally published by our partners at Monex Canada.