A lighter session ahead of Friday payrolls

USD

The dollar extended Tuesday's intraday consolidation into a decisive leg higher through Wednesday, with the DXY printing above 99.4 by the New York close. On the data side, May's ADP private payrolls surged to 122k, the strongest reading since January 2025, while ISM Services rose to 54.5 versus the 53.0 expected, with prices paid still sticky. April factory orders followed, up 4.8% MoM. Together, these lifted market-implied odds of a Fed hike by year-end to around 75% as of writing this morning, from roughly 60% a week ago. The geopolitical leg added further weight too: the constructive Israel–Hezbollah ceasefire tone we cited yesterday was overtaken by direct US–Iranian fire in the Gulf. Hormuz reopening talks have stalled, and Brent is holding above $95. Today's docket is light, seeing initial claims and final Q1 productivity at 13:30 BST. That implies a day of consolidation ahead of Friday's payrolls, when we again think risks again skew dollar-supportive while Hormuz remains in play.

EUR

EURUSD threatened to break below the 1.16 figure overnight Wednesday, after yesterday’s move higher for the buck. The move sits squarely in line with the modest downside bias we have carried on the pair into next week's ECB meeting. Wednesday's domestic flow offered little support: while May's final eurozone PMI surprised modestly higher at 48.5 versus the 47.5 flash, the print still sits below the 50-expansion threshold for a fourth consecutive month. As we noted on Tuesday and again yesterday, the structural drag from imported energy costs continues to weigh on the single currency even as energy-led inflation forces the ECB's hand, with a June rate cut looking all but guaranteed, regardless of the growth impact. Today brings only April retail sales – hardly a big FX market mover; we continue to expect Hormuz headlines and Friday's US payrolls to set the tone from here.

GBP

Wednesday saw cable sliding back toward 1.34 as broad dollar strength asserted itself into the close. The pound's familiar set of headwinds remains in place, and we maintain our long-running view that sterling will struggle to sustain rallies against this backdrop: an unhelpful terms-of-trade hit from the closure of the Strait of Hormuz, a cooling labour market, softer inflation prints, and the political overhang from Labour's local-election drubbing. Today's UK calendar is light ahead of tomorrow’s DMP release. Alongside US payrolls, we suspect this will reinforce a negative skew on sterling risks into the weekend.

CAD

The loonie's tentative Tuesday stabilisation gave way on Wednesday, with USDCAD pushing to a fresh leg higher as the pair continued to track dollar strength rather than crude. Brent holding above $95 on renewed Hormuz tensions did little to support the loonie, underlining the dulling of CAD's traditional oil, while a fragile risk tone and a firmer DXY did the heavy lifting in the other direction. Domestic developments remain supportive of our call for a BoC hold at next Wednesday's meeting: Friday's surprise -0.1% annualised Q1 GDP contraction confirmed a technical recession, while April's slide in the Bank's preferred core inflation measures to five-year lows reinforces the case that energy-driven price pressures may prove temporary. Today's docket is blank - Friday's Canadian Labour Force Survey alongside US payrolls remains the focal point of the week. As such, we remain of the view that tactical risks skew unfavourably for CAD.

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