Dollar loses some momentum as oil premium fades ahead of US CPI
The dollar weakens as oil prices retreat and Iran diplomacy continues, while EUR holds steady, GBP gains on hawkish BoE signals, and CAD awaits a pivotal labour-market report.
USD
The dollar starts Friday on the back foot as the geopolitical safe-haven bid fades. The dollar found support from a second consecutive day of US strikes on Iran, with US Central Command confirming attacks on more than 90 sites. That support weakened as oil prices pulled back and US officials confirmed that diplomatic talks with Tehran remain ongoing. Weekly jobless claims offered little new direction, coming in only marginally below consensus. Markets now price around 34 basis points of Fed tightening over the next five meetings, well below the peak hawkishness seen earlier in the week. With no major US data due today, the dollar is likely to trade off oil, Iran headlines, and positioning ahead of next week’s CPI release.
EUR
The euro holds its ground Friday despite a still-cautious options market. German final CPI data this morning confirmed the disinflation trend, with headline inflation slowing to 2.3% year-on-year from 2.6% in May, while the harmonised measure eased to 2.4% from 2.7%. Monthly prices also fell, confirming that the June inflation picture was softer across the main measures. That should be welcomed by the dovish side of the ECB Governing Council, but it does not settle the policy debate. The German data are backwards-looking and do not capture the renewed energy shock from the near-halt in shipping traffic through the Strait of Hormuz. Money markets now price around 40 basis points of additional ECB tightening this year, up sharply from earlier in the week. EURUSD is expected to remain capped at 1.1500 unless oil prices fall further or the Gulf situation de-escalates more clearly.
GBP
Sterling remains relatively well supported after hawkish remarks from Bank of England Chief Economist Huw Pill. Pill said rates would need to rise in the coming year, arguing that the economy has been running hotter than the supply side allows. That message reinforced the market’s view that the Bank of England still has less room to look through inflation than the Fed or the ECB. Markets now price around 38 basis points of Bank of England tightening this year, with most of that expected later in the year rather than at the July meeting. The support is not clean, however. The UK fiscal backdrop remains a headwind. With little UK data today, sterling is likely to be driven by broader dollar moves, oil prices and Middle East headlines.
CAD
The Canadian dollar was little changed on Thursday as oil support was offset by weaker domestic sentiment. Canada remains a relative beneficiary of the energy shock after the trade surplus widened to C$4.2 billion in May, its largest since 2022, helped by stronger energy, metals and minerals exports. That gives CAD a clearer terms-of-trade tailwind than most G10 peers while Hormuz disruption remains in focus. The domestic offset is the Bank of Canada’s Q2 Business Outlook Survey, the Indicator slipped to -0.39 from -0.35 as inflation expectations weighed on confidence. Today’s June labour-market report is the key event, with the unemployment-rate survey range of 6.5% to 6.9% showing genuine uncertainty. A soft print, especially a higher unemployment rate, would reinforce Bank of Canada on-hold expectations and could push USD/CAD back toward 1.42. A second strong jobs reading would support the loonie, but the reaction is likely asymmetric: weak data should hurt CAD more than strong data helps it.