Written by the Market Insights Team
Canada’s job market hits a snag
Kevin Ford – FX & Macro Strategist
Recently, markets have been adjusting to concerns over slowing economic growth in the U.S. However, last Wednesday’s announcement of reciprocal tariffs introduced a new layer of uncertainty, forcing a shift towards pricing in the risk of a potential recession. Global markets have turned red, reflecting mounting fears of a global economic slowdown. This is particularly concerning for Canada. Although Canada has so far avoided retaliatory tariffs, key industries remain heavily impacted by existing U.S. tariffs. To make matters worse, last Friday’s labor market report presented a bleak outlook for Canada’s economy.
In March 2025, Canada’s labor market took a sharp downturn, shedding 33Kjobs—a stark contrast to the anticipated gain of 10K. This drop follows February’s marginal increase of just 1K jobs, with the recent losses concentrated among full-time workers, older men, and private-sector employees. These shifts signal troubling changes in employment trends.
The unemployment rate edged up to 6.7% in March, an increase of 0.1 percentage points, while long-term unemployment (defined as being jobless for 27 weeks or more) also began to rise. This indicates potential structural issues within the labor market that could pose longer-term challenges to economic stability.
Canada’s trade-reliant provinces, particularly Ontario and Alberta, are facing additional strain due to the U.S.’s new global tariffs announced earlier this week. These regions, heavily dependent on cross-border trade, are already seeing negative market reactions. Reports of potential layoffs at major auto plants have only added to investor concerns over the fragility of Canada-U.S. trade relations.
Despite these headwinds, there are a few glimmers of hope. Hours worked saw a slight rebound in March, rising by 0.4% after February’s 1.3% decline caused by severe snowstorms. On a quarterly basis, hours worked grew at an annualized rate of 2%, suggesting that first-quarter GDP growth may still show resilience. However, wage growth has started to cool, with average hourly wages rising 3.6% year-over-year in March—down from February’s 3.8%. This deceleration reflects broader cooling in the labor market.
The job losses were most pronounced in wholesale and retail trade (-29K jobs), information, culture, and recreation (-20K jobs), and agriculture (-9K jobs). On the other hand, some sectors saw gains, including other services (+12K jobs) and utilities (+4Kjobs). Regionally, Ontario (-28K jobs) and Alberta (-15K jobs) led the employment declines, while Saskatchewan showed unexpected strength with a gain of 7,000 jobs. Employment levels across other provinces remained steady.
A week where decades happen
George Vessey – Lead FX & Macro Strategist
The aftershocks of President Trump’s onslaught of tariff announcements are still reverberating through the financial markets. Equities suffered their worst sell off since the pandemic with the S&P500 down 9% last week and the Nasdaq now in a bear market since it’s down over 20% from its peak. US stock futures point to a further 5% drop today. Oil prices have also plunged and credit spreads have widened sharply, suggesting a revival in recession risk. Polymarket odds of a US recession this year have jumped to 60% but the US administration is digging in to say tariffs will start on schedule, while China has retaliated with 34% tariffs on the world’s largest economy.
When it comes to the US dollar, at first glance, it’s knee jerk weakness seemed paradoxical, as tariffs are typically dollar-positive. However, three key factors drove the dollar lower. First, the implementation of tariff policies exacerbated concerns about US growth. Second, fears of retaliation from other countries in an escalating trade war weighed heavily on sentiment. Third, fiscal policy expectations shifted towards a more contractionary stance in the US, further dampening confidence. The dollar index fell over 2% last week, marking its worst performance since October, whilst yields declined sharply, with the 10-year yield hitting its lowest level since October, reflecting a flight to safety and money markets increasing bets on Fed rate cuts.
The key risk factor to a continuation of the dollar depreciation scenario would be a bout of global risk aversion, which would likely see a global flight to safety into the dollar. Historically, instances of the US entering a recession while the rest of the world remains unaffected have been extremely rare, if they exist at all. While dollar negativity is now consensus, its safe-haven appeal may limit further downside against cyclical currencies.
Looking ahead at the data docket this week, trade policies and any retaliation from other governments will remain the focus for markets but there are also notable data releases. Investors will focus on headline and core CPI and PPI inflation data and the University of Michigan inflation expectations. However, these will be pre-tariff data and are therefore arguably obsolete.
A tug of war for the euro
George Vessey – Lead FX & Macro Strategist
The week ahead for Europe and the euro is set to be dominated by the fallout from the US’s aggressive 20% tariff on EU exports, which threatens to push the region’s economy into recession. The euro, currently hovering around $1.10 against the dollar having reached over $1.11 last week, reflects a tug-of-war between the negative impact of tariffs and the potential fiscal offsets being discussed across the EU.
Germany’s fiscal stimulus package, including a €500 billion infrastructure fund, offers some hope for economic resilience. The prospect of further fiscal support, such as Spain’s proposal for an EU tariff fund, could provide a coordinated response to mitigate the impact of US tariffs. However, the EU’s ability to relax its state aid framework on a country-by-country basis remains uncertain, and a unified approach may take time to materialize. If successful, these measures could eliminate tariff premia and push EUR/USD toward $1.12.
However, another factor to watch is the stability of the Chinese yuan as downside pressures on the renminbi could spill over to the euro, adding further complexity to its trajectory. Investors will also be closely monitoring developments in EU-US trade negotiations and any retaliatory measures from Europe, which could shape the euro’s outlook in the coming weeks.
Beyond the knee-jerk response
George Vessey – Lead FX & Macro Strategist
The intensifying trade conflict between the US and China triggered a sharp selloff in global markets on Friday, causing GBP/USD to drop by 1.99%, sliding from $1.32 the day before to below $1.29. Despite the ongoing equity market downturn, the pair’s losses might not hold though, as shifts in the relative growth outlook challenge the dollar’s “exceptional” positioning, which has been a key driver of its strong valuation over the last few years.
Meanwhile, GBP/EUR dropped 1.5% last week, hitting its lowest level in over six months as global equity markets plunged. Adding to the pound’s struggles against the common currency is the fact that the tariff announcement has prompted a dramatic shift in rate expectations. Markets now anticipate an additional 40 basis points of Bank of England rate cuts by March 2026, partly eroding sterling’s yield advantage. That said, GBP/EUR is in oversold territory according to the daily relative strength index and could bounce from here – the 200-week moving average at €1.1707 should be a major support.
Moreover, the UK remains less exposed to President Trump’s trade war, partly due to the relatively lower tariff rate it faces compared to other nations, including the EU. US exports contribute 2.2% to UK GDP, notably lower than the EU’s 3% average and Germany’s 4%. However, the broader economic slowdown in both the US and Europe poses significant risks to the UK economy.
On the economic front, February’s monthly GDP is expected to show a modest rebound after January’s weak performance. Despite the tariff concerns, the UK government’s significant increase in fiscal spending this year should help sustain growth. However, weaker activity in the US and eurozone remains a looming threat for later in 2025 and into 2026. The pound’s trajectory will depend on how the UK manages these external pressures while maintaining economic stability. For now, it remains under pressure versus the yen and swissy predominantly, whilst its scaling fresh multi-year highs against commodity-linked peers like the Aussie dollar.
Safe havens pump, commodity linked FX slump
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 7-11
All times are in ET
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*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.