Attention on North America with US CPI and a BoC decision due

USD

The dollar spent Tuesday whipsawing on Middle East headlines. President Trump's claim that talks with Tehran were in their "final throes" initially saw the DXY slip to an intraday low around 99.7, with Brent sliding too. Sentiment reversed sharply later in the day, however, after Iran downed a US Apache helicopter near the Strait of Hormuz and Trump vowed a response, delivered overnight. That has left the greenback trading just shy of 100 this morning, with markets broadly reflecting renewed risk aversion. Attention now turns to May CPI at 13:30 BST, the week's pivotal release. Consensus looks for headline inflation to accelerate to 4.2% YoY from 3.8%, with core ticking up to 2.9%. Having argued post-payrolls that price growth, not the labour market, is now the Fed's immediate concern, and with a 2026 hike close to fully discounted, we think a firm energy-led print should keep the dollar supported, albeit cognisant that a downside miss poses the larger asymmetric risk to the buck given present levels.

EUR

EURUSD traded a choppy but ultimately contained range on Tuesday, briefly benefiting from the dollar's peace-hopes wobble before fading as tensions re-escalated, leaving the pair in the mid-1.15s this morning. As we noted yesterday, the single currency remains hostage to external drivers: the bloc's terms-of-trade exposure to a still-closed Strait of Hormuz should make overnight developments unambiguously euro-negative. Today's euro area calendar is once again effectively bare, leaving US CPI as the session's main event, before tomorrow's Governing Council meeting takes centre stage. With May eurozone inflation at 3.2%, a near three-year high, markets fully price the 25bp hike that we, like consensus, expect Lagarde to deliver. But with some now positioned for as many as three increases this year, we continue to see risks as asymmetrically skewed to the downside for the euro — any recognition by Lagarde of the growth costs of tightening into an energy shock should see EURUSD grind lower later in the week.

GBP

Sterling remained a passenger on Tuesday, with cable tracking dollar swings to sit in the high-1.33s this morning and the euro cross little changed. Nothing has shifted our view that the pound's fundamentals are unfavourable: Monday's REC report added to evidence of a cooling labour market, recent inflation prints have softened, the terms-of-trade hit from a shut Hormuz continues to bite, and political uncertainty around PM Starmer persists as Burnham's planned return via the Makerfield by-election keeps the leadership question alive. With no domestic data today and the BoE not meeting until June 18th, sterling should again trade off external forces, US CPI at 13:30 BST, and Middle East headlines chief among them. Tomorrow's April GDP, alongside industrial, manufacturing, construction, and trade figures, offers the week's only meaningful domestic test, though we doubt it delivers a policy steer. For now, we look for cable to hold a tight, dollar- and oil-led range with a downside bias.

CAD

The loonie continued to leak lower on Tuesday, with USDCAD peaking in the high 1.39s, briefly hitting a year-to-date high before settling in the mid-1.39s this morning. Friday's blockbuster 87.8k jobs surge has been comprehensively overshadowed by post-payrolls dollar strength and Middle East volatility, validating our view that the balance of risks for CAD remains unfavourable despite improved domestic data. Today brings the Bank of Canada decision at 14:45 BST, where we, like markets, expect a hold at 2.25%. With the immediate decision not in question, focus falls on the accompanying MPR and Governor Macklem's press conference. A hawkish tilt could lend the loonie some support, but with US CPI landing just an hour earlier and overnight US strikes on Iran keeping geopolitics in the driving seat, we suspect USDCAD direction today is settled in Washington and the Gulf rather than Ottawa.

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