USD
The dollar began the week on the front foot, with the closing around 99.0, up roughly 0.2%, as Treasury Secretary Bessent unveiled “Operation Economic Outcast”, a broadened secondary sanctions campaign against Iran. The announcement spurred modest haven demand, though we think the muted scale of the rally is telling after the Treasury’s decision to double long-dated bond buybacks revived a debasement theme last week. Sanctions news aside, today’s calendar is light, with just the Richmond Fed index, house prices, and weekly ADP figures due. Attention instead falls on tomorrow’s PCE and second-reading GDP data, and above all Chair Warsh’s Jackson Hole debut on Friday. As we argued in our week ahead, with Fed credibility now on trial, we continue to see risks skewed asymmetrically towards renewed dollar weakness once sanctions headlines fade.
EUR
softened on Monday as Bessent’s sanctions announcement supported the buck, though the pair remains within touching distance of recent highs after testing 1.17 last week. The single currency continues to draw some support from evidence that the eurozone recovery is weathering the Middle East energy shock, although August’s PMI beats offer cleaner support for sterling than the euro. Today brings the August Ifo survey, where a strong expectations component that corroborates the PMIs could embolden euro bulls to retest 1.17 ahead of Thursday’s ECB meeting accounts. In our view, a sustained EURUSD break higher still requires either softer US yields or tangible de-escalation in the Gulf, neither of which looks imminent this morning.
GBP
Sterling endured a quiet start to the week, easing back towards 1.36 against the dollar as the greenback caught a haven bid. The domestic calendar is effectively bare this week, leaving at the mercy of external forces: the evolving US sanctions campaign against Iran, oil prices, and Wednesday’s US data. As we noted yesterday, the pound should remain sensitive to global risk sentiment, and any escalation in the Strait of Hormuz that drives crude higher poses a stagflationary risk for the UK that could still weigh on sterling even against a softer dollar. Beyond that, we see Friday’s Jackson Hole keynote as the next likely catalyst for a directional break in cable.
CAD
was the G10’s standout on Monday, rising half a percent to the mid-1.38s after US–Canada trade talks collapsed late on Friday. Washington followed through by announcing 50% tariffs on Canadian goods spanning vehicles, steel, and agricultural products, while President Trump threatened further escalation, and Ottawa’s retaliatory tariffs on $20bn of US goods are set for September 8th. Admittedly, the FX reaction was arguably well contained, given the severity of the news. But given little prospect of negotiations resuming before the US midterms, we see risks tilted toward further loonie weakness. Looking ahead, with no domestic data today, trade headlines and oil should dominate ahead of Friday’s July GDP print. Markets look for 0.2% MoM growth – a reading which, if realised, is unlikely to revive near-term loonie fortunes.
This content was originally published by our partners at Monex Canada.
