Biased toward a stronger, buck for now
The dollar is biased higher as hawkish Fed signals and weak global data offset fragile risk sentiment and ongoing geopolitical uncertainty.
USD
Dollar direction continued to be driven by competing US-Iran peace talk headlines on Thursday, ultimately leaving the index little changed, with traders little the wiser as to the state of negotiations. The underlying macro is, we think, a little clearer. A notably hawkish set of April FOMC minutes from Wednesday evening has lent rate-side support, while soft flash PMIs out of Europe and the UK are also dollar supportive, even as a risk rally late in the day is helping to contain gains for now. Looking ahead, today's docket is light, with only revised UMich consumer sentiment in focus, leaving Middle East headlines as the principal swing factor. With the ceasefire still fragile and Tehran yet to formally respond to the US proposal, our bias remains for the buck to stay better bid into the weekend.
EUR
EURUSD spent much of yesterday trading under pressure after a brutal flash PMI round. The eurozone composite collapsed to 47.5 from 48.8, a 31-month low and well below the 48.8 consensus, with the services sub-index at a 63-month low. France was the acute pressure point, with the composite at 43.5 — the weakest since November 2020. Critically, energy-driven input costs rose to a three-and-a-half-year high for a seventh consecutive month even as employment fell at its fastest pace since 2013. A risk rally late in the day helped push the pair back toward the 1.16-mark, mitigating losses, but given a light calendar today, with only German Q1 GDP detail of note, the single currency remains at the mercy of broad-dollar flows and any further Iran headlines.
GBP
Sterling's resilience finally showed some signs of cracking yesterday, assisted by another soft round of data. The UK composite PMI collapsed 4.1 points to 48.5, with services dropping from 52.7 to 47.9, as survey respondents explicitly cited the Middle East conflict and domestic political uncertainty as joint drivers of weaker output, hiring, and new orders. Coupled with Wednesday's softer April CPI print at 2.8% YoY and Tuesday's labour market report showing unemployment ticking up to 5.0%, the data flow has comprehensively validated our long-held view that market pricing of two further BoE hikes in 2026 looks excessive. That move lower for the pound has extended this morning, with April public sector borrowing coming in higher than expected, and retail sales slumping too. Still, after such a run of poor data, it is a little surprising not to see the pound trading even weaker, keeping us biased toward further losses ahead of the weekend.
CAD
USDCAD ground higher on Thursday to trade just shy of 1.38 overnight. Middle East headlines failed to provide support on this occasion, while domestic data also did little for CAD. That changes today with March retail sales, where consensus looks for a modest gain following February's robust 0.7% print. A softer outturn would reinforce the dovish lean we have flagged from the Bank of Canada and argue for further USDCAD upside; a beat may temporarily lift CAD but is unlikely to overturn the broader trend while oil prices remain hostage to Gulf headlines. As we noted yesterday, the pattern of peace talks repeatedly stalling — most recently after Iran's still-unanswered formal response to the US proposal — keeps our bias for USDCAD risks skewed higher absent a durable de-escalation. Broad-dollar moves and oil will continue to dominate, with domestic data merely tactical.