Sintra in the spotlight
The dollar eased toward 101 amid US–Iran talk reports, while focus shifts to Sintra and upcoming US labour data, with EURUSD risks skewed lower despite improved eurozone confidence.
USD
The dollar slipped for a third straight session on Monday, seeing the DXY easing toward 101 on reports of a fresh round of US–Iran talks, even as Tehran played down any imminent negotiations. Granted, that still leaves the index on course for a solid month, having climbed from near 99 in early June. But as we argued in our Week Ahead piece, the dollar may now have topped out for the year, though the fragile Middle East ceasefire, strained by four days of tit‑for‑tat strikes near the Strait of Hormuz over the weekend, keeps a near‑term floor beneath the buck. Today delivers Conference Board consumer confidence and JOLTS openings, the first labour market signals ahead of Thursday's payrolls, pulled forward by Friday's Independence Day holiday. Markets expect to see 115k job additions and steady 4.3% unemployment. Jobs data aside, Warsh speaks at Sintra on Wednesday, which should keep the immediate focus on EURUSD, seeing risks skewed modestly to the downside with Lagarde also speaking again tomorrow.
EUR
The euro extended its recovery for a third session on Monday, nudging above 1.14 as the session progressed, helped at the margin by better‑than‑expected euro‑area economic confidence. It was ECB President Lagarde’s tone at Sintra that caught our attention; however, even if she failed to give much away in terms of clear forward guidance. Specifically, she noted that the eurozone has become more resilient to economic shocks. That comment, on balance, looks like a hint that inflation concerns may be lessening amongst the Governing Council, albeit we are also cautious around overinterpreting her remarks – confirmation on Wednesday is needed before drawing any firm conclusions. Before then, national inflation prints from France, Spain, and Germany top the eurozone docket today. Assuming no surprises, we continue to favour the ECB being one‑and‑done with hikes; should the data and that panel echo it, near‑term EURUSD risks stay skewed lower, even as we see a growing case for a rebound later in July.
GBP
Sterling was among Monday's better performers, cable firming roughly 0.3% as a softer dollar combined with a relief bid after frontrunner Andy Burnham pledged fiscal discipline at an event in Manchester. Still, that bounce flatters a fragile picture, with the dominant driver still political rather than monetary. As we have argued, replacing Keir Starmer does nothing to resolve the UK's underlying fiscal challenges – with Burnham’s speech yesterday offering little by way of policy detail either. All in all, then, we see little reason to abandon our bias toward modest sterling downside. With no UK data today, focus is on a run of BoE speakers, topped by Governor Bailey on Wednesday and Friday, after the MPC held at 3.75% this month against two dissents for a hike. Thursday's US payrolls are the other key external test, though domestic politics remains arguably the biggest and the most unpredictable, immediate sterling risk.
CAD
The loonie was little changed on Monday, USDCAD holding around 1.42, before climbing higher overnight. In keeping with our longstanding view, we think a credible Hormuz reopening would ease the dollar's haven bid yet cap loonie upside via softer crude, leaving CAD hostage to oil and risk sentiment. Today's focus is on April GDP, where the advance estimate and consensus point to a 0.4% rebound; a firm print could offer modest relief. Macklem then joins Wednesday's Sintra panel, albeit with domestic markets also shut for Canada Day. With the BoC on hold at 2.25% and more patient than a hawkish Fed, and Macklem's USMCA warning a live overhang, we still see USDCAD near 1.42 near term, albeit with risks skewed toward loonie upside once trade concerns start to fade.