June PMIs set the tone today

USD

The DXY finished Monday trading around 101 as desks returned from Friday's thin, Juneteenth-curtailed session. As we argued after Wednesday's FOMC, the greenback's strength owes more to how markets read new Chair Kevin Warsh's debut, his scrapping of forward guidance was taken as hawkish, than to its substance. That bid was tempered by news that Washington and Tehran agreed on a 60-day road map toward a final peace deal at the weekend's latest round of talks. With the US slate light again today, Middle East headlines and USDJPY intervention risk should set the early tone. June flash S&P Global PMIs (14:45 BST) are today's domestic highlight, but Thursday's core PCE is the week's marquee event. Swaps are now close to fully pricing a September hike, with roughly half the FOMC pencilling a 2026 move; we continue to view that repricing as premature and lean towards no change. That said, we suspect this week's PCE data will do little to move the needle. Rather, we think a reassessment of Warsh’s approach and tone is needed, and that will likely require several more Fed meetings.

EUR

The euro stayed on the back foot yesterday, ending Monday down around 0.3%. With the domestic diary bare and remarks from President Lagarde passing without impact, EURUSD remained hostage to broad dollar strength. The single currency continues to suffer disruption to oil and gas supplies stemming from the Iran conflict, with today's June flash PMIs forming the week's only real update on how higher energy costs are feeding through to activity, with the composite already in contraction at 48.5 in May. Admittedly, we retain a modestly constructive medium-term view, predicated on a reopened Strait of Hormuz easing the terms-of-trade squeeze, and see risks that cooling prices could have helped to nudge sentiment higher last month. But even if today’s numbers do show some signs of improvement, Lebanon's flare-ups and Iran's weekend reclosure of the waterway keep us cautious about turning overly bullish on near-term eurozone fortunes.

GBP

Sterling was yesterday’s bright spot. Having dipped below 1.32 on the formal confirmation of Prime Minister Keir Starmer's resignation, cable clawed its way back to the mid-1.32s, with gilts also recovering as the resolution of long-running leadership uncertainty offered a measure of relief. Andy Burnham, victorious in Friday's Makerfield by-election, was sworn in as an MP and is the clear frontrunner to succeed Starmer. But it was speculation around the likely identity of the UK’s next Chancellor that appeared to drive Monday’s sterling move. As we noted yesterday morning, Wes Streeting's name would likely come as a relief to markets, so it was interesting to see the pound climb in lockstep with betting market odds. These saw Streeting’s chance of becoming Chancellor in 2026 rise from 25% early in the morning to around 75% by midday, according to Polymarket. Today, June flash PMIs land at 09:30 BST, offering a partial distraction from the politics. Still, we expect uncertainty to be a continued drag on sentiment, leaving us seeing short-term risks skewed to the downside relative to expectations, for both the PMIs, and the pound.

CAD

The loonie firmed only marginally despite a hot inflation print. As we had anticipated, May CPI paired headline firmness on energy with a contained core, as core-median held at 2.1% and core-trim at 2.0%, both on consensus. That nudged USDCAD down to the mid-1.41s as the afternoon progressed. But crucially, the war premium kept draining from crude, capping any relief from the CPI beat. As we have argued, a credible Hormuz reopening eases the haven dollar but caps loonie upside via softer oil, and that drag won out again. With no major domestic data due, oil and risk sentiment will steer the pair. Markets now price a single BoC hike by December; we think that repricing is premature and stay cautious on the loonie, mindful of the USMCA overhang Governor Macklem has flagged. We expect USDCAD to hold above 1.41 in the short term.

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