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USD
The US dollar ended last week on a softer footing. Friday’s reversal saw the dollar index slip below 98.6 after the Justice Department closed its investigation into Fed Chair Jerome Powell, and optimism grew that US–Iran peace talks could resume, sending EURUSD and GBPUSD higher. That said, the picture remained fluid over the weekend. President Trump cancelled a scheduled visit to Islamabad by his envoys, keeping the Strait of Hormuz closed, even as reports emerged that Iran had offered the US a proposal through Pakistani mediators to reopen the waterway and end the war. That mix has left the dollar adrift this morning, with market attention now also turning to a host of central‑bank meetings, beginning with the Bank of Japan on Tuesday and followed by the Fed, ECB, and BoE. Our week‑ahead preview argued that policymakers would leave rates unchanged but could push back on market pricing. We think that should favour the dollar on a relative basis, absent any new Middle East surprises.
EUR
The euro benefited from dollar weakness on Friday, climbing towards 1.17 against the dollar, though the move owed little to euro‑area developments. The German Ifo survey slipped lower, reinforcing the message from April PMIs earlier in the week that the eurozone economy is flirting with contraction. Looking ahead, domestically, the week is dominated by Thursday’s ECB meeting. In our latest week‑ahead, we argued that markets were too aggressive in pricing hikes and that policymakers would emphasise patience given fragile growth and energy‑driven inflation. Still, with energy costs elevated and the Middle East situation unresolved, we expect the ECB to strike a cautious tone. Without a material improvement in euro‑area data or a decisive decline in US yields, rallies in the single currency are likely to fade.
GBP
Sterling rallied on Friday as the dollar retreated, with GBPUSD rising back above 1.35. Retail sales for February surprised modestly on the upside, but as we highlighted in our morning report, much of the increase reflected panic fuel purchases rather than a genuine resurgence in consumption. UK data earlier in the week showed manufacturing and services PMIs boosted by firms stocking up ahead of expected supply disruptions, and we cautioned that such precautionary spending was unsustainable. Meanwhile, the political backdrop remains fraught, and labour‑market data last week pointed to a softening employment picture. The focus now shifts to Thursday’s Bank of England meeting. We continue to think that markets have priced in too many hikes; we expect the MPC to stand pat and stress downside risks to growth, especially as energy‑driven price pressures look temporary. Absent progress in peace talks, sterling should remain sensitive to global risk sentiment and may struggle to extend gains.
CAD
The Canadian dollar finished last week on the front foot as data showed domestic retail sales grew 0.7% in February. But the loonie’s strength also reflected broad US dollar weakness; the closure of the DOJ probe into Chair Powell and optimism over Iran peace talks weighed on safe‑haven flows. The net result saw USDCAD dip back below 1.37, with the pair continuing to track lower this morning. For the week ahead, a Bank of Canada policy decision on Wednesday is top of the docket. We expect rates to stay on hold, accompanied by guidance that skews modestly dovish relative to swap implied pricing. With that in mind, we think USDCAD will struggle to drive lower unless peace negotiations gather momentum.