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USD
While renewed hostilities in the Strait of Hormuz kept energy prices elevated and underpinned safe‑haven demand for the dollar yesterday, this morning has seen a sharp move lower for the buck, fuelled by fresh optimism around US-Iran peace negotiations, and by another USDJPY slump. We are a little sceptical about the short-term durability of both themes. Granted, we can see why markets have responded positively to a comment from President Trump that “Great progress” is being made in negotiations. But we would caution against assuming this time is different, with similar recent statements failing to translate into a meaningful deal. And, as far as USDJPY is concerned, this morning’s drop lower looks like another round of MoF intervention at first glance, though this has not been confirmed by officials. Still, fundamentals continue to favour JPY weakness. Without structural changes, FX interventions are a sticking plaster measure – not a long-term solution. Still, this morning’s price action leaves us comfortably bullish on the dollar over a tactical horizon, with a retracement of recent moves likely as market attention begins shifting toward Friday’s payrolls report.
EUR
The euro attempted to stabilise on Tuesday after Monday’s risk‑off slide, but the bounce lacked conviction. EURUSD’s dip at the start of the week underscored how sensitive the single currency is to geopolitical stress and higher US yields. Domestic newsflow remains limited, and ECB speakers have continued to stress caution amid imported inflation, offering little support. Still, the single currency is back above 1.17 versus the buck this morning as greenback weakness in response to events overnight ripples out across dollar pairs. With no major eurozone data due today, we think a retracement is the most likely short-term outcome, meaning EURUSD is likely to remain defensive ahead of Thursday’s Riksbank decision and Friday’s US payrolls.
GBP
Tuesday brought only a modest rebound as risk appetite improved and US data took centre stage, leaving GBPUSD hovering near Monday’s lows before developments overnight pushed the pair back toward the 1.36 level. We have previously argued sterling rallies will be capped unless there is a material de‑escalation in the Middle East – signs of the former are helping the pair for now, but we suspect concrete evidence of progress will be needed for the pound to hold onto current gains. Indeed, with no major UK releases today, attention will turn to Thursday’s local elections and Friday’s US payrolls; near‑term risks for sterling remain skewed to the downside.
CAD
USDCAD has retested 1.36 through early trading as Middle East relief filtered through. Still, downside for the pair remains a balancing act between improved risk conditions on the one hand, and lower oil prices on the other. Given our scepticism around US-Iran negotiation progress, a further extension lower looks unlikely to us in the short run, absent improved domestic conditions. On that score, we do not expect Friday’s Canadian labour report to validate hopes of a robust rebound; we see risks of a softer employment print that could temper expectations for further BoC tightening. With US data and Middle East headlines still in the driver’s seat, we expect USDCAD to trade within a 1.35–1.37 band until Friday’s jobs numbers.