Markets were bracing for signs of slower growth in the US last week, until Friday’s nonfarm payroll (NFP) report shifted the narrative. After weakening for most of the week, the US dollar Index (DXY) edged higher following a decent NFP print. While downward revisions to prior months drew some attention, investors largely viewed the report as confirmation of a still-resilient job market, despite weaker ADP payrolls, a soft ISM services reading and rising jobless claims earlier in the week.
Bond markets reacted to the data, with US 10-year real yields rising 5 basis points to 2.17% on Friday. Yields, adjusted for inflation breakevens, increased towards the end of the week, and remain down 6 basis points year-to-date.
The US economy added 137K jobs in May, slightly topping forecasts. The unemployment rate held steady at 4.2%, and wages rose 0.4%, above expectations of 0.3%. Despite the sharp downward revisions to previous job reports, May’s data reinforced a labor market that, while cooling, has not rolled over.
So far in 2025, job growth has averaged around 120K per month, a notable slowdown from the ~230K monthly pace of the 2010s, when the labor force was smaller. More importantly, hiring has been highly concentrated in just a handful of industries.
Services, rather than manufacturing, continue to drive job gains. Education and health services alone have accounted for more than half of total job growth this year. Other service-oriented sectors, such as leisure and hospitality, as well as financial services, also saw modest increases. Meanwhile, manufacturing, mining, and agriculture, the sectors most sensitive to trade policies and tariffs, recorded employment declines.
This week, markets are closely watching the second round of trade talks between the US and China, which start today in London. Meanwhile, May’s US CPI and PPI data will be scrutinized for signs of lingering inflationary pressures. If core CPI remains elevated, expectations for rate cuts could be pushed beyond the June 18 FOMC meeting. A hotter-than-expected PPI print may suggest firms are still passing on higher input costs, reinforcing concerns that inflation remains sticky. In this environment, the Fed is likely to maintain a cautious stance, which could keep Treasury yields elevated and perhaps limit dollar declines.
Job market remains weak
Kevin Ford – FX & Macro Strategist
Canadian employment barely changed in May, adding just 8,8K jobs, while the employment rate stayed at 60.8%. Meanwhile, the unemployment rate ticked up to 7.0%. This marks the fourth straight month where the economy has either stalled or lost jobs. Since February, Canada has shed 15,300 jobs as businesses pull back on hiring, downsize, or lay off workers, largely due to US tariffs on industries like auto, steel, and aluminum. Manufacturing has been hit especially hard, with job losses continuing for the fourth month in a row. Canadians are struggling to find work, as 1.6 million people were unemployed in May, an increase of 13.8% from a year earlier. And it’s taking longer to land a job, with the average search stretching to 21.8 weeks, up from 18.4 weeks last May.
Wholesale and retail trade saw a boost, adding 43K jobs, mostly in wholesale. That helps offset losses from March and April, when the sector lost 55K jobs. Full-time employment grew by 58,000 jobs, but part-time work declined by 49K, leaving overall employment nearly unchanged since January after a strong surge late last year.
The job market remains weak, with the trade war playing a role. Canada needs to create around 25K jobs per month just to keep up with population growth and prevent further increases in unemployment. For policymakers, this report likely reassures the Bank of Canada that holding interest rates steady in June was the right move. The BoC has made it clear that the next two inflation reports will be critical before its July meeting.
More euro strength hinges on US weakness
George Vessey – Lead FX & Macro Strategist
The euro’s battle with US data-driven sentiment continued last week, as traders oscillated between US indicators and a hawkish European Central Bank (ECB). Early in the week, markets brushed aside strong personal spending and JOLTS data, choosing instead to focus on disappointing services ISM and ADP employment figures, as well as the hawkish ECB decision, which propelled EUR/USD toward the $1.15 handle. However, the rally was short-lived, as a solid US jobs report on Friday reversed gains, sending the pair back toward $1.14.
Despite recent swings, further euro upside remains conditional on dollar weakness, as price action continues to diverge from underlying fundamentals. In the near term, bond market volatility could provide impetus for renewed euro strength. Over the longer horizon, the relative performance of US and European growth will likely dictate whether the euro can sustainably outperform the dollar.
On the domestic front, the ECB followed through on its widely expected 25bp rate cut, though Lagarde’s hawkish tone caught markets off guard. She emphasized that the central bank is nearing the end of its easing cycle, reinforcing the euro’s resilience despite May’s inflation slowdown to 1.9% y/y. ECB forecasts now project inflation at 1.6% by 2026, but Lagarde downplayed the revision, attributing it primarily to lower energy costs and euro strength. The euro found additional support as short-term rates edged higher, with investors trimming bets on deeper cuts ahead.
Looking ahead, key Eurozone releases will help gauge sentiment and growth momentum. The Sentix indicator should offer insight into early June investor confidence, following its sharp May rebound after April’s post-liberation day slump. Meanwhile, Germany’s inflation data and the EU labor market report will provide further clues on the economic outlook.
Sterling’s surge stumbles as US data weighs
George Vessey – Lead FX & Macro Strategist
The pound briefly surged past $1.36, hitting its highest level since February 2022—a threshold GBP/USD has surpassed just 14% of the time post-Brexit. However, Friday’s strong US jobs report prompted a swift pullback, sending the pair back toward $1.35 as traders reassessed bullish bets.
Against the euro, GBP struggles to reclaim the €1.19 handle, near which lies the 50-day moving average, though the 21-day and 100-day moving averages are acting as support. Since mid-May, GBP/EUR has remained in a sideways range, though real rate differentials point closer to €1.20, given the Bank of England’s (BoE) more hawkish stance relative to the ECB.
The pound continues to be supported by UK data, which has recently been reinforcing the BoE hawkish tilt. Upward revisions to UK PMIs last week followed April’s sharp CPI surprise, strengthening the case for persistent inflation pressures and supporting higher-for-longer rate expectations. However, there is a growing possibility the BoE turns more dovish, limiting the pound’s upside amid the risks to growth posed by the global trade war and signs that underlying inflation continues to moderate.
This week’s UK employment (Tuesday) and GDP (Thursday) reports will offer fresh insights into economic conditions. The labor market continues to soften, but the ONS’s persistent data collection issues mean figures should be viewed cautiously. Meanwhile, GDP is expected to contract by 0.1% m/m in April, as the temporary boost from tariff front-running fades. Despite this, consumer spending remains resilient, reinforcing broader economic stability, which is constructive for sterling.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Markets were bracing for signs of slower growth in the US last week, until Friday’s nonfarm payroll (NFP) report shifted the narrative. After weakening for most of the week, the US dollar Index (DXY) edged higher following a decent NFP print. While downward revisions to prior months drew some attention, investors largely viewed the report as confirmation of a still-resilient job market, despite weaker ADP payrolls, a soft ISM services reading and rising jobless claims earlier in the week.
Bond markets reacted to the data, with US 10-year real yields rising 5 basis points to 2.17% on Friday. Yields, adjusted for inflation breakevens, increased towards the end of the week, and remain down 6 basis points year-to-date.
The US economy added 137K jobs in May, slightly topping forecasts. The unemployment rate held steady at 4.2%, and wages rose 0.4%, above expectations of 0.3%. Despite the sharp downward revisions to previous job reports, May’s data reinforced a labor market that, while cooling, has not rolled over.
So far in 2025, job growth has averaged around 120K per month, a notable slowdown from the ~230K monthly pace of the 2010s, when the labor force was smaller. More importantly, hiring has been highly concentrated in just a handful of industries.
Services, rather than manufacturing, continue to drive job gains. Education and health services alone have accounted for more than half of total job growth this year. Other service-oriented sectors, such as leisure and hospitality, as well as financial services, also saw modest increases. Meanwhile, manufacturing, mining, and agriculture, the sectors most sensitive to trade policies and tariffs, recorded employment declines.
This week, markets are closely watching the second round of trade talks between the US and China, which start today in London. Meanwhile, May’s US CPI and PPI data will be scrutinized for signs of lingering inflationary pressures. If core CPI remains elevated, expectations for rate cuts could be pushed beyond the June 18 FOMC meeting. A hotter-than-expected PPI print may suggest firms are still passing on higher input costs, reinforcing concerns that inflation remains sticky. In this environment, the Fed is likely to maintain a cautious stance, which could keep Treasury yields elevated and perhaps limit dollar declines.
More euro strength hinges on US weakness
George Vessey – Lead FX & Macro Strategist
The euro’s battle with US data-driven sentiment continued last week, as traders oscillated between US indicators and a hawkish European Central Bank (ECB). Early in the week, markets brushed aside strong personal spending and JOLTS data, choosing instead to focus on disappointing services ISM and ADP employment figures, as well as the hawkish ECB decision, which propelled EUR/USD toward the $1.15 handle. However, the rally was short-lived, as a solid US jobs report on Friday reversed gains, sending the pair back toward $1.14.
Despite recent swings, further euro upside remains conditional on dollar weakness, as price action continues to diverge from underlying fundamentals. In the near term, bond market volatility could provide impetus for renewed euro strength. Over the longer horizon, the relative performance of US and European growth will likely dictate whether the euro can sustainably outperform the dollar.
On the domestic front, the ECB followed through on its widely expected 25bp rate cut, though Lagarde’s hawkish tone caught markets off guard. She emphasized that the central bank is nearing the end of its easing cycle, reinforcing the euro’s resilience despite May’s inflation slowdown to 1.9% y/y. ECB forecasts now project inflation at 1.6% by 2026, but Lagarde downplayed the revision, attributing it primarily to lower energy costs and euro strength. The euro found additional support as short-term rates edged higher, with investors trimming bets on deeper cuts ahead.
Looking ahead, key Eurozone releases will help gauge sentiment and growth momentum. The Sentix indicator should offer insight into early June investor confidence, following its sharp May rebound after April’s post-liberation day slump. Meanwhile, Germany’s inflation data and the EU labor market report will provide further clues on the economic outlook.
Sterling’s surge stumbles as US data weighs
George Vessey – Lead FX & Macro Strategist
The pound briefly surged past $1.36, hitting its highest level since February 2022—a threshold GBP/USD has surpassed just 14% of the time post-Brexit. However, Friday’s strong US jobs report prompted a swift pullback, sending the pair back toward $1.35 as traders reassessed bullish bets.
Against the euro, GBP struggles to reclaim the €1.19 handle, near which lies the 50-day moving average, though the 21-day and 100-day moving averages are acting as support. Since mid-May, GBP/EUR has remained in a sideways range, though real rate differentials point closer to €1.20, given the Bank of England’s (BoE) more hawkish stance relative to the ECB.
The pound continues to be supported by UK data, which has recently been reinforcing the BoE hawkish tilt. Upward revisions to UK PMIs last week followed April’s sharp CPI surprise, strengthening the case for persistent inflation pressures and supporting higher-for-longer rate expectations. However, there is a growing possibility the BoE turns more dovish, limiting the pound’s upside amid the risks to growth posed by the global trade war and signs that underlying inflation continues to moderate.
This week’s UK employment (Tuesday) and GDP (Thursday) reports will offer fresh insights into economic conditions. The labor market continues to soften, but the ONS’s persistent data collection issues mean figures should be viewed cautiously. Meanwhile, GDP is expected to contract by 0.1% m/m in April, as the temporary boost from tariff front-running fades. Despite this, consumer spending remains resilient, reinforcing broader economic stability, which is constructive for sterling.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Greenback consolidates amid choppy FX markets
The robust US labor market prompted a delay in expectations for Fed rate cuts, now projected for September instead of July. USD OIS rates reflect this shift, with only -4bps priced for July and two cuts expected by December.
US equities rallied, with the S&P 500 futures closing above 6000 and Nasdaq 100 futures climbing above 21800. Strong jobs data outweighed concerns over higher yields. The 2-year yield ended above 4.00%, while the 10-year yield consolidated around 4.50%.
US officials are set to meet their Chinese counterparts in London on Monday, with tariffs and technology expected to dominate discussions.
Antipodeans ie AUD/USD fell 0.25% while NZD/USD fell by 0.36%. USD/SGD rose 0.27%.
Fed policymakers’ top concern is inflation risk Fed Governor Adriana Kugler stated that because tariffs will have “the first-order effect” on pricing, she is presently more aware of inflation. Prior to being concerned about a possible downturn, “the vast majority of Fed policymakers are first and foremost worried about inflation right now,” she added.
If there are still upside risks to inflation, she is in favor of keeping interest rates unchanged.
According to Bloomberg, she outlines three ways that tariffs may have a long-term effect on inflation: a rise in short-term inflation expectations; opportunistic price rises on goods that aren’t directly impacted by the levies; and decreased productivity that pushes prices higher.
Looking at APAC FX, USD/SGD has edged higher overnight.
Next key resistance levels are at 21-day EMA of 1.2921 and 50-day EMA of 1.3039, where USD buyers may look to take advantage now.
US Treasury requests BoJ measures regarding Yen In its semiannual currency report, the US Treasury went far further than previously in its policy recommendations for Tokyo, calling on the BoJ to boost interest rates in order to support the yen.
In a report issued Thursday in Washington, the Treasury Department stated that “BoJ policy tightening should continue to proceed in response to domestic economic fundamentals including growth and inflation, supporting a much-needed structural rebalancing of bilateral trade and a normalization of the yen’s weakness against the dollar.”
“Large public pension funds, should invest abroad for risk-adjusted return and diversification purposes, and not to target the exchange rate for competitive purposes,” the US Treasury emphasized in the study.
USD/JPY has gained 0.91% overnight.
From technical lens, the next key resistance is at 50-day EMA of 145.16, and USD buyers may look to take advantage of the positive price momentum.
Antipodeans scale back overnight
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Trade tensions ebb and flow. Markets cheered the news President Trump and his Chinese counterpart Xi agreed to further talks on tariffs and rare earth minerals, while the US Treasury avoids labeling China a currency manipulator.
The same can’t be said for Switzerland though, which is now included on the US Treasury’s FX monitoring list, complicating Swiss National Bank (SNB) policies.
Trading blows. A dramatic and public fallout between President Trump and Tesla CEO Elon Musk sent Tesla shares tumbling 14%, weighing on wider equity markets this week and containing risk appetite globally.
Shifting focus to macro data. Tariff fatigue is setting in, bringing US economic fundamentals back into the spotlight. De-dollarization may finally have a macro trigger, as weaker US data and accelerated Fed rate cut expectations challenge dollar stability.
Monetary policy. Meanwhile, indications that other central banks may be nearing the end of easing cycles could put further pressure on the buck, with the BoC holding rates steady and the ECB cutting rates to 2%, but signaling this rate is appropriate for navigating ongoing economic uncertainty.
FX focus. EUR/USD jumped to a 6-week high near $1.15, but like GBP/USD’s climb to over 3-year highs above $1.36, the positive momentum waned and both pairs reversed course from their peaks.
Market positioning already reflects broad skepticism toward the dollar, so the scale of additional bearish shifts may be constrained in the short term.
Global Macro Stagflation worries reignite
Central Banks action. No surprises from the Bank of Canada (BoC) and the European Central Bank (ECB). The BoC held rates steady at 2.75% for a second straight meeting after seven consecutive cuts. Uncertainty remains the theme, just as it was in the April meeting. The ECB cut rates as expected, but Lagarde stated that policymakers are approaching the end of the monetary policy cycle, as the current rate is deemed appropriate for navigating ongoing economic uncertainty.
Mixed job data. ADP private sector hiring in May came in at just 37K its lowest level since March 2023. Jobless claims rose by 8K to 247K, the highest since October, with Kentucky accounting for most of the increase (5,5K claims). The four-week moving average ticked up to 235K from 227K, and Kentucky’s reliance on the distilling industry, which faces trade retaliation, may be contributing to reported layoffs in whiskey production. Two-month Non-Farm-Payroll revised lower by -95K, but May actual comes at 139K, higher than expected. Unemployment rate stays at 4.2%, participation rate still solid.
Stag creeps, flation leaps. ISM services PMI slipped to 49.9, falling short of the expected 52, with new orders plunging to 46.4 from 52.3 the previous month. On the cost front, inflationary pressures intensified as the prices paid index climbed to 68.7, reaching levels last seen during the final stretch of the post-pandemic supply chain disruptions.
Tariffs & trade. The hike in steel and aluminum tariffs from 25% to 50% took effect on June 4, yet markets have largely tuned out concerns about US policy throughout the week. Global trade is steady, but US West Coast freight volumes show decline. Key indicators have rebounded but remain below recent peaks. April’s sharp US import drop likely corrects pre-tariff inflation, while Chinese and Korean exports to the US also fell.
Week ahead Diverging price pressures
Germany CPI. If prints come in softer than consensus for Europe’s largest economy, it will reinforce the emerging deflationary narrative across the euro area.
Eurozone trade balance will show whether external demand is rescuing the eurozone’s growth trajectory as domestic consumption cools. A wider surplus would bolster hopes that net exports can offset slowing internal demand, whereas a narrowing gap would heighten ECB officials’ concerns about the broader economic outlook given lingering trade‐war uncertainties (e.g., U.S. tariffs).
US CPI figures for May will be scrutinized for signs of persistent price pressures. If core inflation stays stubborn, it may prompt markets to push back expectations of an easing cycle beyond the June 18 FOMC meeting.
US PPI figures. Any upside surprise could signal that input costs are still being passed through, sustaining broader inflationary trends. In an environment where the Fed is nearing a decision on whether to pause or pivot, a hotter PPI print would likely reinforce a more cautious Fed stance, keeping US Treasury yields elevated and US equities under pressure.
UK labour market report. Wage growth is expected to remain robust at around 5–6% year‑on‑year, continuing to outpace inflation and reinforcing the Bank of England’s reluctance to cut rates.
FX Views Focus flips to fundamentals
USD Dropping on data deluge. The US dollar remains under selling pressure with standout losses endured against high beta peers such as the NZD (-1.2%) and NOK (-1.1%) this week. The dollar’s recent weakness is beginning to look less like a temporary positioning adjustment and more like a clear signal of shifting macroeconomic sentiment. Market participants are reacting to mounting evidence that the US economy is losing momentum, reinforcing expectations that the Fed may need to cut rates sooner than officials have suggested, which could trigger another leg lower for the dollar. Moreover, the evolving US fiscal backdrop remains a key factor, amplifying doubts about the dollar’s stability as well as section 899 of Trump’s tax bill – a policy that reduces foreign investors’ returns on US holdings which would likely dampen capital inflows, further driving away foreign investors from US assets. That said, market positioning already reflects broad skepticism toward the dollar, so the scale of additional bearish shifts may be constrained.
EUR Hawkish surprise lifts the euro. The euro fluctuated around the $1.14 handle early in the week before gaining momentum, fueled by a hawkish Lagarde, who signaled that the rate-cutting cycle is nearing its end. With the ECB’s rate cut and soft Eurozone CPI largely priced by markets, any significant bearish impact on the euro was muted. Instead, disappointing US data, particularly forward-looking indicators like PMIs, added to uncertainty driven by trade tensions, supporting the euro’s gains, which remain highly sensitive to US trade developments. With key trade deadlines approaching, the euro’s trajectory will remain largely trade-driven—any positive trade news favoring the US could apply downward pressure on the common currency.
GBP Fleeting spike to 40-month high. The pound briefly spiked to its highest level since February 2022, finally breaking through the $1.36 resistance barrier – a level GBP/USD has only been above for 14% of the post-Brexit period. The move was triggered by a string of weak US data but recent UK data has consistently exceeded expectations too. This has helped GBP/USD’s over 8% rise year-to-date as the pair closely tracks the UK-US economic surprise differential. The six-month correlation coefficient is nearing its highest level in a decade and is more a reflection of strong UK data as opposed to weak US data. Thus, any deterioration in UK fundamentals, or a sharp rebound in US data, could temper upside potential for the pound, with $1.36 proving a tough threshold to hold above. Indeed, renewed risk aversion prompted the pair to reverse course sharply back towards $1.35. As sterling is approaching overbought conditions via the 14-day relative strength index, the upside potential in the short-term could be limited. Traders are also trimming their expectations on further gains in the British pound, according to options-market pricing. Key UK labour market figures will be closely watched on Tuesday for signs of easing wage pressures, which could influence rate expectations and thus the pound.
CHF Risk sentiment vs. monetary policy. After four monthly gains on the trot, the Swiss franc has started June still stronger versus the dollar, with USD/CHF dipping below 0.82 this week. Ongoing global economic uncertainty and de-dollarization trends have boosted traditional safe havens this year with the franc rising almost 10% vs. the dollar. Still, as we’ve flagged several times, a strong franc poses a problem for the Swiss National Bank (SNB), reducing the cost of imported goods and dragging headline back into negative territory. As such, markets are pricing a near 50% chance of a jumbo rate cut later this month with a return to negative interest rates by year-end increasingly likely. However, stronger-than-expected GDP growth complicates the picture, potentially reducing the urgency for aggressive SNB easing. If growth remains solid, the franc could stay supported, particularly as global uncertainty drives safe-haven demand. Indeed, if the de-dollarization theme persists and risk sentiment remains fragile, the franc’s safe-haven appeal could even counterbalance any SNB-driven downside risks.
CADSlow grind lower. The Bank of Canada (BoC) cut rates as expected, reiterating that uncertainty remains the theme, just as it was in the April meeting. The big question: when will the BoC provide clearer guidance on monetary policy moving forward? At this point, a rate cut in July is a coin toss. Macklem pointed out that they’ll be watching two upcoming inflation reports closely before the July meeting. Meanwhile, the Governing Council noted that while disinflationary forces are showing up on the goods side, rising costs are likely keeping inflation elevated, pushing core inflation measures higher than the BoC had expected, and wanted. The Canadian dollar has reached a fresh 2025 low of 1.3635 amid continued US dollar softness. Opening June with a high of 1.3746 and a low of 1.3635, the CAD has struggled to hold below 1.365 for long. The gradual and slow decline has pushed it beneath its 100-week SMA at 1.3763 over the past two weeks, signaling persistent downward pressure. On a daily scale, the CAD is edging toward oversold territory, as indicated by the Relative Strength Index (RSI), suggesting a potential rebound, especially if the US dollar strengthens. Meanwhile, the 20-, 40-, and now 60-day SMAs have all crossed below the 200-day SMA, establishing firm resistance at the 1.377 level. To the downside, 1.36 remains the next key support, marking a crucial threshold for further movement.
AUD Aussie growth misses expectations. Australia’s Q1 GDP growth disappointed, coming in at 0.2% q/q versus 0.4% expected, with annual growth steady at 1.3% y/y. Weak domestic demand and adverse weather impacting mining and exports were key contributors. The household savings ratio rose to 5.2%, reflecting cautious consumer behavior despite the Reserve Bank of Australia’s (RBA) 50bps rate cuts this year. From a technical perspective, AUD/USD has struggled to sustain rallies near the 0.6535-0.6550 Fibonacci resistance zone. The pair appears to be forming a topping pattern, with tactical support levels at 21-day EMA of 0.6498 and 200-day EMA of 0.6404 next. Looking ahead, traders will focus on the NAB Business Confidence data, which could provide insights into the domestic economic outlook and influence the RBA’s policy stance.
CNYChina’s services PMI shows resilience. China’s Caixin services PMI edged higher to 51.1 in May, beating expectations of 51.0 and improving from 50.7 prior. This suggests modest growth in the services sector, with both supply and demand improving slightly. However, foreign demand weakened, as new export orders contracted for the first time this year, reflecting global trade challenges. The composite PMI slipped into contraction at 49.6, dragged down by manufacturing weakness. CNY is near six-month highs after Trump-Xi’s recent call. The next key resistance levels are at 21-day EMA of 7.2022, 50-day EMA of 7.2296 and 200-day EMA of 7.2428. Upcoming data, including CPI, trade balance, and export figures, will be critical in shaping market expectations for further policy support from Beijing and its impact on the yuan.
JPY Japan’s core-wage growth recovers. Japan’s core-wage growth accelerated to 2.5% y/y in April, up from 2.1% prior, though still below January’s 2.9%. Headline wage growth remained steady at 2.6%, but real wages continued to decline due to persistent inflation, falling 1.1% on a core basis. This highlights the challenge for the Bank of Japan (BoJ) in achieving sustainable wage-driven inflation. USD/JPY has retreated from the 148.39-148.70 resistance zone, testing tactical support at 141.97-142.36. The pair remains in a medium-term consolidation phase, with key support at 140. A break below this level could signal further downside, though near-term range trading is likely. USD/JPY is now inching towards key psychological resistance of 145 level. The next resistance level is at 50-day EMA of 145.15. Market participants will monitor Japan’s upcoming GDP, current account, and industrial production data for clues on economic momentum and potential shifts in BoJ policy.
MXN Peso gains as EM carry trades surge. The Mexican peso has gained this week, riding the wave of low volatility and renewed enthusiasm for emerging market and Latin American carry trades. Investors are diving back into the strategy, fueled by easing trade tensions and momentum from TACO. With traders borrowing in low-yield currencies to invest in higher-yielding emerging markets, stability remains critical, any sudden shifts, especially from Trump, could disrupt the trend. A global currency volatility measure recently dropped to 8.9%, lifting Bloomberg’s EM carry trade index to a seven-year high. Meanwhile, moderating inflation is making EM bonds more appealing, with currencies like the Brazilian real and Turkish lira standing out. Asset managers have also ramped up bets on EM currencies, with positions in Mexico’s peso hitting an eight-month high. Despite market resilience, Mexico’s macro landscape continues to show signs of strain. The country’s manufacturing PMI edged up to 46.7 in May from 44.8 in April, according to S&P Global, but remains in contraction for the 11th consecutive month. Supply and demand pressures persist, with new orders declining for the 11th straight month—partly due to U.S. tariffs. Export activity has plunged to its lowest levels since early 2021, while purchasing activity has slowed at the fastest pace since late 2020, highlighting ongoing concerns over weak demand. Meanwhile, the peso has gained 0.8% this week against the U.S. dollar, bringing its year-to-date appreciation to 8.7%. It reached a high of 19.44 and a low of 19.14, its lowest level year-to-date and the weakest in eight months, as it gradually nears the 200-week SMA at 19.04. Since April, the 20-day SMA has remained a moving resistance level, presenting opportunities for USD sell-offs during upward rebounds.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by the Market Insights Team Buckle up for payrolls
George Vessey – Lead FX & Macro Strategist
The US dollar slipped alongside two-year yields after fresh US economic data painted a mixed picture, but losses were pared following the news that China’s President Xi Jinping and US President Donald Trump have agreed to start a new round of trade negotiations as soon as possible. But the relief was brief. Global risk sentiment then took a knock later in the day as President Trump and Elon Musk traded blows over X, with Tesla’s share price plunging 14%, dragging on US equity indices.
On the data front, the US trade deficit fell 55% in April, on the largest-ever plunge in imports, as companies stopped massive front-loading of goods. The retreat reflects the abrupt hit to trade, after firms had rushed products into the country earlier this year to try to get ahead of new taxes on imports Trump had promised. Shifts in US import flows have already outstripped the pandemic and look unlikely to return to normal before tariff levels reach a new equilibrium.
Meanwhile, higher-than-expected jobless claims signals cracks in the labour market, but rising unit labour costs and weaker productivity point to lingering inflation pressures. The challenge for policymakers is evident: navigating slower growth while inflation risks persist, a combination that complicates the Federal Reserve’s (Fed) rate stance. The next big test for the dollar is today’s US jobs report, which will be closely watched, especially for signs of Liberation Day’s impact on hiring and whether DOGE spending cuts are starting to weigh on federal employment. Markets expect the US created 126K jobs during May and the unemployment rate to have stayed at 4.2%. Recent employment components of survey data suggest May was a weak month though, with tariff-related uncertainty weighing on hiring decisions. If we get a softer than expected print today, this should be dollar negative and might send the dollar index back towards 3-year lows.
FX markets are adjusting to softer US prints, and as clarity on policy emerges, the dollar’s trajectory will become more defined. Yet, the broader concern remains: trust in the dollar as a global reserve currency continues to erode, reinforcing its position as the core of the ‘Sell America’ trade. Unless stronger trade agreements materialize, skepticism toward the dollar is likely to persist, keeping upside potential limited.
Even with the trade war taking a backseat recently though, dollar sentiment remains shaky, as attention has also shifted to President Trump’s tax bill. The Congressional Budget Office now projects it will add $2.4 trillion to the deficit over the next decade, a factor that could weigh on long-term dollar stability too.
Canadian exports take a hit, trade deficit soars Kevin Ford – FX & Macro Strategist
Canadian exports took a steep dive in April, plunging 10.8%, the biggest drop since December 2008, as demand from the U.S. collapsed due to tariffs. The country’s trade deficit ballooned to a record C$7.1 billion, far exceeding even the most pessimistic forecasts. Exports to the U.S. were hit hardest, sinking 15.7%, while sales to other countries saw a modest 2.9% uptick.
Imports weren’t spared either, slipping 3.5% to CAD 67.6 billion. The biggest losses came from motor vehicles and parts (-17.7%), industrial machinery (-9.5%), consumer goods (-4.2%), and electronic equipment (-5.5%). Imports from the U.S. dropped 10.8%, reinforcing the pressure on cross-border trade.
Canada’s export volumes could stay sluggish for the rest of the year unless there’s a meaningful shift in U.S. trade policy. For now, the data paints a challenging picture for economic growth, with lingering uncertainty weighing on business confidence.
Slow grind lower The Canadian dollar has reached a fresh 2025 low of 1.3635 amid continued U.S. dollar softness. Opening June with a high of 1.3746 and a low of 1.3635, the CAD has struggled to hold below 1.365 for long. The gradual and slow decline has pushed it beneath its 100-week SMA at 1.3763 over the past two weeks, signaling persistent downward pressure. On a daily scale, the CAD is edging toward oversold territory, as indicated by the Relative Strength Index (RSI), suggesting a potential rebound, especially if the U.S. dollar strengthens. Meanwhile, the 20-, 40-, and now 60-day SMAs have all crossed below the 200-day SMA, establishing firm resistance at the 1.377 level. To the downside, 1.36 remains the next key support, marking a crucial threshold for further movement.
Hawkish surprise lifts the Euro
Antonio Ruggiero – FX & Macro Strategist
ECB President Christine Lagarde delivered unexpectedly hawkish remarks during yesterday’s press conference, despite cutting the deposit rate to 2%, in line with market expectations. In response, the euro surged nearly 1% against the dollar, flirting with $1.15 at $1.1495, while German two-year yields climbed to a two-week peak. Lagarde stated that policymakers are approaching the end of the monetary policy cycle, as the current rate is deemed appropriate for navigating ongoing economic uncertainty. She also did not rule out upward revisions to growth projections, also emphasizing that the 25-basis-point cut was not unanimous. While trade uncertainty may weigh on business investment and exports, Lagarde pointed to government spending on defense and infrastructure as potential growth drivers in the future. Shortly after, money markets trimmed expectations for further rate cuts this year, no longer fully pricing another ECB reduction by year-end.
However, the euro’s rally wasn’t solely driven by Lagarde’s speech. In fact, the correlation between EUR/USD and the spread between two-year US-German yields has weakened to its lowest level in more than two years, underscoring that trade developments—rather than interest rate differentials—have been the primary driver of FX movements recently. Instead, an unexpected jump in US jobless claims, released around the same time as Lagarde’s speech, quietly contributed to EUR/USD’s surge. The data reinforced expectations that the Fed may cut rates at least twice this year, further stoking concerns over tariffs and economic uncertainty—adding to the dollar’s challenges.
Although EUR/USD lost some momentum as the session progressed, a softer-than-expected NFP report today could see the pair ending the week comfortably within the $1.14 range.
Pound notches 40-month high
George Vessey – Lead FX & Macro Strategist
The pound briefly spiked to its highest level since February 2022, finally breaking through the $1.36 resistance barrier – a level GBP/USD has only been above for 14% of the post-Brexit period. The move was triggered by a string of weak US data, which puts the US jobs report in focus today. A weaker print could jolt the pound back above this threshold whilst a stronger print could drag it back towards $1.35.
As we’ve highlighted for several weeks, beyond dollar dynamics, GBP sentiment has notably improved thanks to strong domestic economic data, UK trade agreements, and the BoE’s relatively hawkish stance. These factors reinforce sterling’s idiosyncratic strength, making its rally more than just a dollar story. However, given the pound is approaching overbought conditions via the 14-day relative strength index, the upside potential in the short-term could be limited in scope. Traders are also trimming their expectations on further gains in the British pound, according to options-market pricing, with one-month risk reversals edging lower for a third day running.
Meanwhile, versus the euro, sterling is struggling to reclaim the €1.19 handle this week, near which lie both the 21-day and 100-day moving averages. GBP/EUR continues to trade in sideways pattern since mid May, though real rate differentials suggest the pair should be trading closer to €1.20 given the divergence between ECB and BoE policy expectations. Peso lifted by EM carry Kevin Ford – FX & Macro Strategist The Mexican peso has gained this week, riding the wave of low volatility and renewed enthusiasm for emerging market and Latin American carry trades. Investors are diving back into the strategy, fueled by easing trade tensions and momentum from TACO. With traders borrowing in low-yield currencies to invest in higher-yielding emerging markets, stability remains critical—any sudden shifts, especially from Trump, could disrupt the trend. A global currency volatility measure recently dropped to 8.9%, lifting Bloomberg’s EM carry trade index to a seven-year high. Meanwhile, moderating inflation is making EM bonds more appealing, with currencies like the Brazilian real and Turkish lira standing out. Asset managers have also ramped up bets on EM currencies, with positions in Mexico’s peso hitting a nine-month high.
The peso has gained 0.8% this week against the U.S. dollar, bringing its year-to-date appreciation to 8.7%. It reached a high of 19.44 and a low of 19.12, its lowest level year-to-date and the weakest in eight months, as it gradually nears the 200-week SMA at 19.04. Since April, the 20-day SMA has remained a moving resistance level, presenting opportunities for USD sell-offs during upward rebounds.
Dollar index holds near lower third of 7-day range
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
The US dollar slipped alongside two-year yields after fresh US economic data painted a mixed picture, but losses were pared following the news that China’s President Xi Jinping and US President Donald Trump have agreed to start a new round of trade negotiations as soon as possible. But the relief was brief. Global risk sentiment then took a knock later in the day as President Trump and Elon Musk traded blows over Twitter, with Tesla’s share price plunging 14%, dragging on US equity indices.
On the data front, the US trade deficit fell 55% in April, on the largest-ever plunge in imports, as companies stopped massive front-loading of goods. The retreat reflects the abrupt hit to trade, after firms had rushed products into the country earlier this year to try to get ahead of new taxes on imports Trump had promised. Shifts in US import flows have already outstripped the pandemic and look unlikely to return to normal before tariff levels reach a new equilibrium.
Meanwhile, higher-than-expected jobless claims signals cracks in the labour market, but rising unit labour costs and weaker productivity point to lingering inflation pressures. The challenge for policymakers is evident: navigating slower growth while inflation risks persist, a combination that complicates the Federal Reserve’s (Fed) rate stance. The next big test for the dollar is today’s US jobs report, which will be closely watched, especially for signs of Liberation Day’s impact on hiring and whether DOGE spending cuts are starting to weigh on federal employment. Markets expect the US created 126K jobs during May and the unemployment rate to have stayed at 4.2%. Recent employment components of survey data suggest May was a weak month though, with tariff-related uncertainty weighing on hiring decisions. If we get a softer than expected print today, this should be dollar negative and might send the dollar index back towards 3-year lows.
FX markets are adjusting to softer US prints, and as clarity on policy emerges, the dollar’s trajectory will become more defined. Yet, the broader concern remains: trust in the dollar as a global reserve currency continues to erode, reinforcing its position as the core of the ‘Sell America’ trade. Unless stronger trade agreements materialize, skepticism toward the dollar is likely to persist, keeping upside potential limited.
Even with the trade war taking a backseat recently though, dollar sentiment remains shaky, as attention has also shifted to President Trump’s tax bill. The Congressional Budget Office now projects it will add $2.4 trillion to the deficit over the next decade, a factor that could weigh on long-term dollar stability too.
Hawkish surprise lifts the Euro
Antonio Ruggiero – FX & Macro Strategist
ECB President Christine Lagarde delivered unexpectedly hawkish remarks during yesterday’s press conference, despite cutting the deposit rate to 2%, in line with market expectations. In response, the euro surged nearly 1% against the dollar, flirting with $1.15 at $1.1495, while German two-year yields climbed to a two-week peak. Lagarde stated that policymakers are approaching the end of the monetary policy cycle, as the current rate is deemed appropriate for navigating ongoing economic uncertainty. She also did not rule out upward revisions to growth projections, also emphasizing that the 25-basis-point cut was not unanimous. While trade uncertainty may weigh on business investment and exports, Lagarde pointed to government spending on defense and infrastructure as potential growth drivers in the future. Shortly after, money markets trimmed expectations for further rate cuts this year, no longer fully pricing another ECB reduction by year-end.
However, the euro’s rally wasn’t solely driven by Lagarde’s speech. In fact, the correlation between EUR/USD and the spread between two-year US-German yields has weakened to its lowest level in more than two years, underscoring that trade developments—rather than interest rate differentials—have been the primary driver of FX movements recently. Instead, an unexpected jump in US jobless claims, released around the same time as Lagarde’s speech, quietly contributed to EUR/USD’s surge. The data reinforced expectations that the Fed may cut rates at least twice this year, further stoking concerns over tariffs and economic uncertainty—adding to the dollar’s challenges.
Although EUR/USD lost some momentum as the session progressed, a softer-than-expected NFP report today could see the pair ending the week comfortably within the $1.14 range.
Pound notches 40-month high
George Vessey – Lead FX & Macro Strategist
The pound briefly spiked to its highest level since February 2022, finally breaking through the $1.36 resistance barrier – a level GBP/USD has only been above for 14% of the post-Brexit period. The move was triggered by a string of weak US data, which puts the US jobs report in focus today. A weaker print could jolt the pound back above this threshold whilst a stronger print could drag it back towards $1.35.
As we’ve highlighted for several weeks, beyond dollar dynamics, GBP sentiment has notably improved thanks to strong domestic economic data, UK trade agreements, and the BoE’s relatively hawkish stance. These factors reinforce sterling’s idiosyncratic strength, making its rally more than just a dollar story. However, given the pound is approaching overbought conditions via the 14-day relative strength index, the upside potential in the short-term could be limited in scope. Traders are also trimming their expectations on further gains in the British pound, according to options-market pricing, with one-month risk reversals edging lower for a third day running.
Meanwhile, versus the euro, sterling is struggling to reclaim the €1.19 handle this week, near which lie both the 21-day and 100-day moving averages. GBP/EUR continues to trade in sideways pattern since mid May, though real rate differentials suggest the pair should be trading closer to €1.20 given the divergence between ECB and BoE policy expectations.
Dollar index holds near lower third of 7-day range
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD softens as risk sentiment wavers
US equity futures declined, with Nasdaq 100 futures down 1% and S&P 500 futures falling 0.7%. Higher US Treasury yields weighed on tech and growth stocks, while noise around Trump-Musk relations added further pressure.
The ECB delivered a 25bps rate cut to 2.00%, as expected, while revising inflation forecasts lower to 2% for 2025 and 1.6% for 2026.
President Lagarde hinted that the policy easing cycle may be nearing its conclusion, with a potential pause in July.
The USD softened slightly overnight as risk sentiment remained cautious following a lack of concrete developments in US-China trade talks.
USD/CNH pair remained relatively unchanged, reflecting market awareness of ongoing challenges in US-China relations.
EUR/USD pulled back from ~1.1500 to 1.1440 during the ECB press conference, but ended 0.25% gains overnight.
China’s Services PMI shows resilience, but CNH unchanged
China’s Caixin Services PMI edged higher to 51.1 in May, beating expectations of 51.0 and improving from 50.7 prior.
This suggests modest growth in the services sector, with both supply and demand improving slightly.
The Composite PMI slipped into contraction at 49.6, dragged down by manufacturing weakness.
USD/CNH was unchanged overnight, with next key resistance levels at 21-day EMA of 7.2013 and 50-day EMA of 7.2292.
Greenback nears three-year lows ahead of jobs data
The greenback, as measured by the USD index, neared three-year lows overnight ahead of tonight’s all-important US jobs data.
The May non-farm employment change is forecast to see 126k new jobs according to the Bloomberg consensus, with the unemployment rate forecast to stay steady at 4.2%.
The key risk is another strong number. The US job report has defied expectations for a weakening with the last two results actually stronger than expected.
With another strong number, the USD could stage a recovery from key support at the three-year lows on the USD index and push the greenback higher in other markets.
The US jobs report is due at 10.30pm AEST.
Aussie hovers above key level 0.65
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Signs of weakness in US economic data have weighed on the dollar, fueling concerns about the rising possibility of a downturn in the second half of the year. Yesterday’s reports point to a slowing economic landscape, with markets increasingly anticipating softer data in the coming months. On one hand, ADP private sector hiring in May came in at just 37K its lowest level since March 2023, signaling weaker job growth momentum.
Meanwhile, the ISM services PMI slipped to 49.9, falling short of the expected 52, with new orders plunging to 46.4 from 52.3 the previous month. This sharp decline is fueling concerns about the broader economic trajectory and the potential for a turning point. The downturn was primarily driven by weaker business activity and new orders, both reaching their lowest levels since the COVID-19 lockdowns in 2020. On the cost front, inflationary pressures intensified as the prices paid index climbed to 68.7, reaching levels last seen during the final stretch of the post-pandemic supply chain disruptions.
Concerns over economic growth are rippling through US Treasuries. With fiscal fears easing for now, the 10-year Treasury yield has dipped below 4.4%, while the 30-year yield has fallen under 5%. As markets ignore US policy noise and the VIX drops below its 10-year average of 18.5, the US dollar is adjusting to softer growth expectations, reflecting lower pricing.
On the tariff front, at a press briefing this week, White House spokesperson Karoline Leavitt said US Trade Representative Jamieson Greer sent a letter to all trade partners as a friendly reminder of the upcoming deadline. Yes, we’re almost one month away from the 90-day tariff truce after reciprocal tariffs were announced. She noted that Greer, along with Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, are actively discussing tariffs with key Washington allies. Although the US Court of International Trade initially blocked the tariffs last week, an Appeals Court overturned the decision, keeping them in place and offering the US administration some relief.
All eyes on the NFP tomorrow. Markets expect the US created 126K jobs during May and the unemployment rate to stay at 4.2%. Softer than expected should be dollar negative and might send the DXY Index to test its 2025 low at 97.9.
Euro attempts to hold above $1.14
Antonio Ruggiero – FX & Macro Strategist
The weaker US data batch of late has helped the euro push into $1.14 territory, holding firm above its 21-day moving average. The rebound was hardly surprising, but markets still place greater weight on the stronger-than-expected NFP data later in the week, which poses a downside risk to EUR/USD.
Beyond softer US data, an undercurrent of bearish sentiment continues to drag on the euro, as lingering US trade negotiations with China and the EU prevent the currency from making a decisive break above $1.14. Every US dollar rebound further weakens investor confidence that the euro could emerge as the world’s new reserve currency, a theory that had been gaining traction in recent months.
Nonetheless, uncertainty remains high, with tensions escalating as key deadlines approach. EU officials fear Trump holds outsized “leverage”, arguably his second-favorite word, trailing only behind ‘tariffs’, given the simultaneous crises of trade negotiations and the war in Ukraine. In just 11 days, Trump will square off with European leaders at the G7 summit in Canada, an event expected to provide clarity—or at least hope—on both the geopolitical and trade fronts. Meanwhile, EU leaders are set to meet in Brussels in less than three weeks to negotiate a trade deal with Trump and avert the looming 50% tariffs, with preliminary discussions already underway in Paris this week.
Despite these tensions, EUR/USD overnight volatility remained subdued, especially compared to the eve of previous European Central Bank (ECB) meetings. Aligning with the broad consensus that tariffs will weigh on EU economic activity, the ECB is almost certain to cut its deposit rate to 2.00% today, with markets pricing 99.7% of a cut today. Adding to the case for a cut, Tuesday’s soft Eurozone inflation prints saw the headline figure break below the 2% target to 1.92%, while core inflation—which strips out volatile food and energy prices—fell from 2.7% to 2.3%, reinforcing concerns about economic momentum.
Let’s go oilers!
Kevin Ford – FX & Macro Strategist
“Let’s go, Oilers!” That might have been the only unexpected comment from Bank of Canada Governor Tiff Macklem’s latest press conference. Beyond the hockey enthusiasm, uncertainty remains the theme, just as it was in the April meeting. The big question: when will the BoC provide clearer guidance on monetary policy moving forward?
At this point, a rate cut in July is a coin toss. Macklem pointed out that they’ll be watching two upcoming inflation reports closely before the July meeting. Meanwhile, the Governing Council noted that while disinflationary forces are showing up on the goods side, rising costs are likely keeping inflation elevated, pushing core inflation measures higher than the BoC had expected, and wanted. With a stronger-than-expected Q1 GDP print, the bank opted to hold steady, anticipating slower growth in Q2.
One standout difference between the Federal Reserve and the BoC during 2025 is how Canada’s central bank is actively engaging with businesses to get a fuller picture of the economy beyond just hard data. Companies have built up inventories, paused capital expenditures, and struggled to secure new suppliers, facing rising prices. However, after 7 consecutive cuts and now two pauses from the BoC, the current posture from both central banks stays the same; let’s wait and see.
Also worth noting as of yesterday, the increase in steel and aluminum tariffs from 25% to 50% is now in effect, adding another layer of complexity to Canada’s economic outlook.
Still, market sentiment remains upbeat. The Canadian stock market reached an all-time high earlier this week, the 10-year government bond yield has fallen nearly 18 basis points since May, and the CAD hit a 2025 low yesterday at 1.3653. Short-term movements continue to be driven by dollar weakness, as volatility eases and markets momentarily tune out tariff concerns while awaiting tomorrow’s job data.
UK data resilience driving GBP/USD strength
George Vessey – Lead FX & Macro Strategist
Recent UK data has consistently exceeded expectations this year, pushing Citi’s UK economic surprise index to a one-year high. This has helped GBP/USD climb over 8% year-to-date as the pair closely tracks the UK-US economic surprise differential. The six-month correlation coefficient between the two is nearing its highest level in a decade and is more a reflection of strong UK data as opposed to weak US data.
The de-dollarization narrative amidst waning US economic exceptionalism, a ballooning debt pile and erratic US policy is an obvious weight on the dollar, but this strong correlation also suggests GBP/USD could remain supported if UK data continues to surpass forecasts even amid shifting US conditions. However, any deterioration in UK fundamentals, or a sharp rebound in US data, could temper upside potential for the pound, with $1.36 proving to be a key hurdle to overcome.
In terms of UK data though, the final PMI figures for May have been released this week and the composite figure was revised higher than the preliminary to 50.3 in May, up from April’s 48.5, signalling a return to slight growth despite the reading being its second lowest since October 2023. The increase was driven by stronger services output, offsetting deeper contractions in manufacturing.
The services PMI edged up to 50.9, reflecting a fragile recovery as US tariff concerns receded. However, demand remains weak, with new orders declining for the fourth time in five months. Employment has fallen for eight months, though the latest drop was the mildest since late 2024. Price pressures persist, but business confidence rebounded, supported by investment plans and improving economic prospects.
Yields drop, dollar soft, Kiwi, Aussie and Loonie gain
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Signs of weakness in US economic data have weighed on the dollar, fueling concerns about the rising possibility of a downturn in the second half of the year. Yesterday’s reports point to a slowing economic landscape, with markets increasingly anticipating softer data in the coming months. On one hand, ADP private sector hiring in May came in at just 37K its lowest level since March 2023, signaling weaker job growth momentum.
Meanwhile, the ISM services PMI slipped to 49.9, falling short of the expected 52, with new orders plunging to 46.4 from 52.3 the previous month. This sharp decline is fueling concerns about the broader economic trajectory and the potential for a turning point. The downturn was primarily driven by weaker business activity and new orders, both reaching their lowest levels since the COVID-19 lockdowns in 2020. On the cost front, inflationary pressures intensified as the prices paid index climbed to 68.7, reaching levels last seen during the final stretch of the post-pandemic supply chain disruptions.
Concerns over economic growth are rippling through US Treasuries. With fiscal fears easing for now, the 10-year Treasury yield has dipped below 4.4%, while the 30-year yield has fallen under 5%. As markets ignore US policy noise and the VIX drops below its 10-year average of 18.5, the US dollar is adjusting to softer growth expectations, reflecting lower pricing.
On the tariff front, at a press briefing this week, White House spokesperson Karoline Leavitt said US Trade Representative Jamieson Greer sent a letter to all trade partners as a friendly reminder of the upcoming deadline. Yes, we’re almost one month away from the 90-day tariff truce after reciprocal tariffs were announced. She noted that Greer, along with Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, are actively discussing tariffs with key Washington allies. Although the US Court of International Trade initially blocked the tariffs last week, an Appeals Court overturned the decision, keeping them in place and offering the US administration some relief.
All eyes on the NFP tomorrow. Markets expect the US created 126K jobs during May and the unemployment rate to stay at 4.2%. Softer than expected should be dollar negative and might send the DXY Index to test its 2025 low at 97.9.
Euro attempts to hold above $1.14
Antonio Ruggiero – FX & Macro Strategist
The weaker US data batch of late has helped the euro push into $1.14 territory, holding firm above its 21-day moving average. The rebound was hardly surprising, but markets still place greater weight on the stronger-than-expected NFP data later in the week, which poses a downside risk to EUR/USD.
Beyond softer US data, an undercurrent of bearish sentiment continues to drag on the euro, as lingering US trade negotiations with China and the EU prevent the currency from making a decisive break above $1.14. Every US dollar rebound further weakens investor confidence that the euro could emerge as the world’s new reserve currency, a theory that had been gaining traction in recent months.
Nonetheless, uncertainty remains high, with tensions escalating as key deadlines approach. EU officials fear Trump holds outsized “leverage”, arguably his second-favorite word, trailing only behind ‘tariffs’, given the simultaneous crises of trade negotiations and the war in Ukraine. In just 11 days, Trump will square off with European leaders at the G7 summit in Canada, an event expected to provide clarity—or at least hope—on both the geopolitical and trade fronts. Meanwhile, EU leaders are set to meet in Brussels in less than three weeks to negotiate a trade deal with Trump and avert the looming 50% tariffs, with preliminary discussions already underway in Paris this week.
Despite these tensions, EUR/USD overnight volatility remained subdued, especially compared to the eve of previous European Central Bank (ECB) meetings. Aligning with the broad consensus that tariffs will weigh on EU economic activity, the ECB is almost certain to cut its deposit rate to 2.00% today, with markets pricing 99.7% of a cut today. Adding to the case for a cut, Tuesday’s soft Eurozone inflation prints saw the headline figure break below the 2% target to 1.92%, while core inflation—which strips out volatile food and energy prices—fell from 2.7% to 2.3%, reinforcing concerns about economic momentum.
UK data resilience driving GBP/USD strength
George Vessey – Lead FX & Macro Strategist
Recent UK data has consistently exceeded expectations this year, pushing Citi’s UK economic surprise index to a one-year high. This has helped GBP/USD climb over 8% year-to-date as the pair closely tracks the UK-US economic surprise differential. The six-month correlation coefficient between the two is nearing its highest level in a decade and is more a reflection of strong UK data as opposed to weak US data.
The de-dollarization narrative amidst waning US economic exceptionalism, a ballooning debt pile and erratic US policy is an obvious weight on the dollar, but this strong correlation also suggests GBP/USD could remain supported if UK data continues to surpass forecasts even amid shifting US conditions. However, any deterioration in UK fundamentals, or a sharp rebound in US data, could temper upside potential for the pound, with $1.36 proving to be a key hurdle to overcome.
In terms of UK data though, the final PMI figures for May have been released this week and the composite figure was revised higher than the preliminary to 50.3 in May, up from April’s 48.5, signalling a return to slight growth despite the reading being its second lowest since October 2023. The increase was driven by stronger services output, offsetting deeper contractions in manufacturing.
The services PMI edged up to 50.9, reflecting a fragile recovery as US tariff concerns receded. However, demand remains weak, with new orders declining for the fourth time in five months. Employment has fallen for eight months, though the latest drop was the mildest since late 2024. Price pressures persist, but business confidence rebounded, supported by investment plans and improving economic prospects.
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Dollar weaker on weak economic data
Dollar index fell 0.4% to 98.79 as markets digested weak US economic data, particularly ADP employment and ISM Services.
The DXY Index tested 98.67 after the Trump/Putin phone call headlines but recovered to close at 98.79.
In Europe, dip-buying interest in EUR/USD is expected around Thursday’s ECB decision, with regional geopolitical risks seen as potential headwinds.
Risk-sensitive currencies like AUD and NZD outperformed.
Asian currencies showed mixed performance, with CNH tracking broader dollar moves.
SGD gains 0.27% while CNH was up 0.28% overnight.
Contractionary US ISM Services, USD weaker
The US ISM services index dropped from 51.6 in April to 49.9 in May, below the 52-point consensus.
The details don’t seem promising.
The number of new orders dropped from 52.3% to 46.4, the lowest since December 2022.
The one bright spot is that employment increased from 49 to 50.7.
In Asia, USD/SGD is 0.5% away from September 2024 low of 1.2789.
From technical lens, USD/SGD remains under pressure, with the next key resistance levels of 21-day EMA of 1.2928 and 50-day EMA of 1.3051 remain in sight.
Aussie lower after GDP, but remains in the range
The Australian dollar was initially lower on Wednesday after a disappointing March-quarter GDP reading.
Annualised economic growth to 31 March for Australia was reported at 0.2% for the quarter (below the 0.4% forecast) and 1.3% for the year (below the 1.5% consensus forecast).
The AUD/USD later rallied helped by the weaker US dollar.
For now, the AUD/USD remains in the clearly defined trading range, with USD buyers targeting a move back to 0.6500 while USD sellers will look the lower end of the range at 0.6400.
With no major AUD data out over the next 48 hours, the main driver of this market will be Friday night’s US non-farm payrolls report.
Antipodeans gain on dollar weakness
Table: seven-day rolling currency trends and trading ranges
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
