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USD
The dollar enters the new week firmly on the front foot, with the DXY higher across the board this morning after a chaotic weekend on the Middle East front. Trump’s blunt rejection of Iran’s counter-proposal on Sunday evening – describing it as “totally unacceptable” – combined with Netanyahu’s CBS interview confirming that the war is “not over” and that the removal of Iranian enriched uranium remains an active priority, has sent Brent crude back toward $105 per barrel. Friday’s data should add to greenback support on further consideration, even if this was not immediately obvious from price action ahead of the weekend. April nonfarm payrolls printed at 115k versus our and consensus expectations around 65k, with the unemployment rate steady at 4.3%, although softer 0.2% MoM average hourly earnings and a record low Michigan sentiment print will help to temper excess optimism. Today’s calendar is thin, leaving headlines in the driving seat. As we noted in our week-ahead piece, Wednesday’s CPI is the key US data risk.
EUR
EURUSD traded firmly through most of last week, briefly approaching the high 1.17s on Friday, with further rhetoric from Nagel and de Guindos stabilising the odds of a June hike at almost 80%. The pair has, however, opened the new week notably softer, slipping as renewed escalation in US-Iran rhetoric reasserts the energy-import drag on the single currency. The euro area’s terms-of-trade backdrop, with Brent now trading near $105, remains the dominant headwind, and we doubt last week’s hawkish ECB chorus alone can offset that against a firmer dollar. Today’s calendar is light, so we look for EURUSD to drift lower in line with the broader risk tone today, with eyes on tomorrow’s German ZEW survey and Wednesday’s US CPI as the bigger near-term catalysts.
GBP
Domestic politics took centre stage over the weekend, validating the asymmetric risks to sterling we have highlighted in recent weeks. Labour’s heavy local election losses have prompted weekend calls for Sir Keir Starmer to resign, with Angela Rayner publicly warning that “what we are doing isn’t working” and Reform UK and the Greens consolidating gains at Labour’s expense. Starmer has so far rejected the calls, but the leadership noise represents a clear downside catalyst for the pound that will need to be navigated. With the Middle East escalation also pushing oil higher, the UK’s terms-of-trade backdrop remains unhelpful, and we continue to doubt sterling’s ability to sustain rallies. We continue to look for the pound to weaken in the coming days, driven by domestic political uncertainty, assuming no US-Iran resolution emerges.
CAD
The loonie ended last week on a weaker footing, with USDCAD briefly testing 1.37 after Friday’s domestic employment report delivered the soft print we had flagged as a risk. Canada shed 18k jobs in April against consensus for a +10k gain, with the unemployment rate jumping to a six-month high of 6.9% from 6.7%. The data should undermine residual market pricing for further Bank of Canada tightening, something we have long viewed as misplaced, shifting attention back toward growth concerns ahead of the June meeting. This morning, the loonie is being pulled in two directions: the renewed Middle East escalation has pushed WTI back near $100, which should provide some support, but the broader risk-off tone and a firmer dollar typically dominate. Given a quiet domestic calendar today, we expect USDCAD to consolidate around the 1.37 handle, with US CPI on Wednesday the next major external test.