Payrolls miss sets the tone for a holiday-thinned Friday

USD

Yesterday delivered the downside payroll surprise that topped the risks we had flagged for this week. June nonfarm payrolls rose just 57k against consensus estimates for a 113k increase, with May revised down from 172k to 129k. Unemployment slipped from 4.3% to 4.2%, but participation fell three tenths to 61.5%, flattering the headline, while average hourly earnings rose 0.3% MoM, as expected. As we wrote in yesterday's reaction, this dented the building rate hike narrative: July tightening odds were cut to below 20%, with a full increase pushed back from October to December, albeit this remains too aggressive against our call for no change this year. The greenback duly fell, dropping to a two-week low, and the DXY sits at 100.6 this morning, on track for its biggest weekly fall since early April, consistent with our topping-out thesis. Today, US markets are shut for Independence Day, leaving no data and thin liquidity. With the next round of US–Iran talks delayed by the funeral of Iran's former Supreme Leader, which begins on July 4th, weekend headline risk is the main threat to an otherwise quiet session.

EUR

The euro was largely a passenger yesterday, rising above 1.14 as the dollar weakened post-payrolls. With oil back at pre-war levels as Hormuz flows recover, we continue to think the ECB is one-and-done after June's hike, even as this sets up the rebound we expect later in July as Middle East risk premia fade. Today brings final June services PMIs: the flash improved to 48.9, a three-month high, with most responses collected before the June 17th signing of the US–Iran memorandum, so we see revision risks skewed higher. ECB speakers Lagarde, Nagel, and Makhlouf are also due. EURUSD hovers near its two-week peak at 1.145 this morning, and with the US out, we expect consolidation.

GBP

Sterling extended its recovery yesterday, seeing cable briefly pressing toward 1.34 after the soft US jobs report, before easing back. Notably, this has not been a pure dollar story: leadership frontrunner Andy Burnham's pledge of strict adherence to existing fiscal rules has calmed markets for the time being, while net-short speculative positioning on the pound has left cable primed for a squeeze. Even so, we are inclined to fade the move. Initial policy indications from Burnham have hardly scanned as market-friendly while the new Chancellor’s identity remains a key unknown. Politics aside, today's docket features the final June services PMI at 09:30 BST, and remarks from Governor Bailey at 16:00 BST. The latter is worth watching closely too, with this Bailey’s first since Wednesday's Sintra panel, where we read him as dovish relative to market pricing. That mix, we think, leaves cable risks skewed to the downside ahead of the weekend.

CAD

The loonie was the notable G10 laggard yesterday in its first full session back from Canada Day, making only modest headway versus the buck. Granted, the USDCAD is now back below 1.42 - but only just, as markets continue to digest Wednesday's CUSMA outcome. As we had cautioned against expecting, there was no clean extension: the US declined to renew the pact in its current form, and although the agreement remains in force under an annual review process, lingering trade uncertainty keeps a risk premium embedded in the currency and continues to hold back business investment. Crude offers little offset either. WTI near $68 remain the lowest since late February, with Hormuz flows now above 10 million barrels per day, while the BoC's patience at 2.25% against a Fed still debating hikes keeps rate differentials unhelpful. Today's domestic calendar is empty, so with US markets shut, CAD should trade in thin ranges off oil and weekend US–Iran headlines. June PMIs and labour market figures are the next major tests of note; until then, we see loonie upside staying capped.

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