Written by the Market Insights Team
Is June another pause for the Fed?
Kevin Ford – FX & Macro Strategist
Today’s meeting is expected to focus more on policy direction for June and July rather than any immediate action. Markets will be looking closely for any signals from the FOMC statement or Powell’s press conference that suggest rate cuts could come in the near term, though that remains highly unlikely. As previously noted, Powell is not expected to preemptively cut rates before leaving office, unlike some of his predecessors. His commitment to controlling inflation has put him at odds with President Trump, who is likely to push back again, as he has repeatedly in the past.
April’s jobs report exceeded expectations, with nonfarm payrolls rising by 177K. This indicates that, for now, recent tariff announcements, DOGE and related fiscal measures, and broader trade policies have not significantly affected the labor market. The ISM services report also showed surprising strength, with prices paid emerging as a key concern for the Fed as it navigates the delicate balance between growth and price stability. Given the resilience in employment, the FOMC is unlikely to see enough labor market deterioration to justify a rate cut at the June meeting, especially with inflationary pressures still in play. For now, the committee is likely to remain in a wait-and-see mode, monitoring trade policy shifts and incoming economic data before making any significant moves.
Tariffs front and center
The latest Dallas Fed survey highlights how businesses are navigating cost increases, with 54% planning to pass them on to customers while 44% are considering absorbing them to protect market share. Notably, the proportion of firms choosing to pass on tariff-related costs varies—41% plan to pass some of the costs, 26% most of them, and another 26% all of them. This suggests a measured approach, where businesses weigh price adjustments against the risk of losing customers.
Tariffs have increasingly dominated earnings calls, with their effects differing across industries. For example, Mattel’s CEO confirmed price hikes on toys in response to tariffs pressures, while airlines reported consumers pulling back on travel spending, disrupting industry momentum. The impact is particularly pronounced in the U.S. auto sector, where 25% tariffs on auto parts took effect on May 3, with exemptions granted for USMCA-compliant goods. With trade policy shifts in motion, businesses and markets alike are adjusting to the evolving landscape.
Pharma tariffs, along semis, remain on the table for the U.S., though they likely won’t be implemented yet, as the administration looks to secure trade deal wins to boost poll numbers. Meanwhile, stockpiling continues driving U.S. trade deficit numbers.
Loonie positive on TSX moves
A major trade deal is expected to be announced soon, but not with Canada. The Carney-Trump meeting was just an initial step in trade discussions, with President Trump sticking to familiar rhetoric while showing openness toward renegotiating the CUSMA/USMCA trade agreement. However, any substantial progress on that front may take longer.
Meanwhile, news that the U.S. and China will begin formal trade talks on May 10-11 to address tariff issues briefly pushed the dollar higher, though the Loonie remained confined to a tight range between 1.376 and 1.38.
So far, oil’s decline has had little to no impact on USD/CAD movement, despite its historically strong influence on commodity-linked currencies like the Loonie. The correlation between raw-material prices and the Canadian dollar has weakened in recent years, while broader risk appetite has become a more dominant driver. This shift is evident in the sharp drop in the 1-month correlation between the TSX and USD/CAD, highlighting how financial market sentiment now plays a greater role in shaping the currency’s trajectory.
Risk sentiment, reflected in the TSX’s rebound over the past couple of weeks, has provided a notable lift to the Loonie, driven by renewed risk-on momentum in equity markets. Short-term bearish pressure on the U.S. dollar since Liberation Day has also supported USD/CAD appreciation.
Meanwhile, Canada’s trade deficit narrowed to C$0.51 billion in March 2025 from C$1.41 billion in February, as imports fell more than exports. Exports edged down 0.2% to $69.9 billion, with sales to the U.S. sinking 6.6% amid American tariffs on Canadian goods. However, this was offset by a 24.8% surge in exports to non-U.S. markets. Metal and non-metallic mineral exports declined 3.2% under U.S. tariff pressure, while consumer goods sales dropped 4.2%, reflecting broader trade challenges.
The decline in the trade deficit was driven by Ottawa’s reciprocal tariffs in response to new U.S. levies, alongside boycott of U.S. products by Canadian retailers and households. Imports dropped 1.5% to $70.4 billion—the first decline since September—led by steep falls in metal and non-metallic mineral products (-15.8%) and energy products (-18.8%). U.S. imports fell 2.9% following Canada’s 25% tariff on U.S. goods, including metals, imposed on March 13.
EU mulls new counter-tariffs
Written by Shier Lee Lim, Lead FX and Macro Strategist
Sticking with the trade story, according to sources familiar with the situation, Bloomberg said that if continuing trade discussions don’t produce a satisfying outcome, the European Union intends to apply extra tariffs on around EUR100 billion worth of US goods.
Member states will be notified of the possible retaliatory measures as early as Wednesday, and they will have a month to consult before the final list is created.
To begin the talks, the European Commission, the bloc’s executive branch that deals with trade issues, is allegedly going to present a document to the US this week.
As shown in the below chart, EUR/USD is nearing the overbought Bollinger Bands signal. The 21-day EMA of 1.1278 remains key support for EUR/USD.
USD lower ahead of Fed meeting
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 5 – 9
All times are in ET
Have a question? [email protected]
*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 quothave 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.
Leave a Reply