US-China trade talks resume today – United States

Kevin Ford – FX & Macro Strategist

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.

Oil prices jumps over 3% in a week

Table: 7-day currency trends and trading ranges

Key global risk events

Calendar: June 9-13

All times are in BST

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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.