The path of least resistance skews upward for the buck
The dollar closed Thursday broadly unchanged, with DXY hovering in the mid-99s as competing US data prints largely offset one another.
USD
The dollar closed Thursday broadly unchanged, with DXY hovering in the mid-99s as competing US data prints largely offset one another. Wednesday’s May ADP printed a punchy 122k versus consensus closer to 75k, extending the run of upside US data surprises that temporarily lifted market-implied odds of a Fed hike before year-end to roughly 85% from 60% a week ago. But that hawkish impulse was tempered yesterday, however, by initial jobless claims rising 13k to 225k, the highest reading since the Iran war began in late February, a tentative sign that the labour market might be starting to wobble under the weight of the conflict. Today's focus is squarely on May non-farm payrolls at 13:30 BST, where consensus looks for a modest deceleration from April's +115k alongside an unchanged 4.3% unemployment rate. Anything weaker would test our view that risks remain skewed dollar-supportive while Hormuz remains in play — but with Hezbollah's rejection of the latest US-brokered Israel-Lebanon ceasefire keeping the geopolitical risk premium intact, we still see the path of least resistance for the buck as higher.
EUR
EURUSD finished Thursday a fraction higher, though still trading close to 1.16, capping a session of intraday churn but limited net movement, as the euro continued to absorb the dual pressure of a firm greenback and a Middle Eastern energy backdrop that remains structurally unhelpful for the bloc. Eurozone retail sales for April surprised modestly to the downside, but the data did little to reshape ECB pricing, with markets continuing to near fully discount a 25bp hike at next Thursday's Governing Council meeting. As we have flagged repeatedly, the asymmetry on EURUSD is now firmly skewed to the downside heading into next week's ECB, given that Lagarde's hawkish tilt is largely in the price while imported energy costs continue to drag on the bloc's growth outlook — Brent settled below $97 yesterday but remains well above pre-conflict levels with Hormuz effectively closed. Today's eurozone calendar is light, with French manufacturing data and final Q1 GDP the only notable releases, leaving the single currency once again hostage to US payrolls and Middle Eastern headlines, where Iran's assertion that there has been "no tangible progress" in talks keeps the risk premium firmly intact.
GBP
Sterling spent Thursday extending its slow grind lower, slipping a few tenths against the euro, while finishing flat versus the dollar. We continue to doubt that the pound can sustain rallies against the familiar backdrop of an unhelpful terms-of-trade dynamic tied to the closure of Hormuz, a cooling labour market, softer recent inflation prints, and the political uncertainty surrounding PM Starmer's tenure. Today's UK docket centres on the May Decision Maker Panel survey at 09:30 BST, which we expect to show year-ahead CPI inflation expectations holding near April's elevated 3.5% three-month average — a print that would do little to shift odds for the BoE's June 18 decision but reinforce the sense of a stagflationary squeeze. Beyond that, cable will be wholly headline- and dollar-driven, with US payrolls the bigger catalyst by some margin. The negative skew for sterling risks that we have flagged previously remains very much intact heading into the weekend.
CAD
The loonie traded heavy again through Thursday's session, with USDCAD pushing back up to 1.39 as the pair shrugged off earlier-week support from a firmer crude tape. WTI gave back some ground as Trump flagged that progress with Tehran could come "as early as this weekend", before Hezbollah's rejection of the ceasefire late in the US session reversed some of those moves. Today brings the double-header we have flagged all week: Canada's May Labour Force Survey alongside US non-farm payrolls, both at 13:30 BST. Consensus looks for a modest 10k Canadian print and the unemployment rate to remain at 6.9%. Even on an in-line outturn, however, we maintain the view that the balance of risks remains skewed unfavourably for CAD, given Canada's Q1 technical recession, April's slide in the BoC's preferred core gauges to five-year lows, and our continued expectation of a hold at the 10 June decision. With Hormuz still closed and the US data run skewing hawkish, USDCAD bulls retain the upper hand.