USD
The dollar lost a little altitude on Thursday, the slipping back toward 101.40 from Wednesday’s fifteen-month high and finishing as a modest underperformer across the majors, with May core PCE doing little to move the needle. Headline PCE accelerated to 4.1% and core to 3.4%, but both printed on consensus without being hot enough to extend rate hike repricing. Final University of Michigan sentiment, particularly its inflation expectations, is today’s only data release of note. For now, though, we still judge the market’s 2026 hike conviction premature and lean towards no change; reassessing Chair Warsh will take several more meetings, not one in-line print.
EUR
snapped a three-day losing run on Thursday, edging back toward 1.14 as the post-PCE dollar softened and German GfK consumer confidence ticked higher to -29.2. The move was almost entirely the mirror image of the dollar leg; with a bare domestic calendar, the single currency remains a passenger to greenback direction and, above all, to the energy backdrop. Granted, that backdrop turned marginally less friendly overnight. Having watched erase virtually its entire war premium as Strait of Hormuz traffic normalised, a reported strike on a vessel near Oman has helped to revive energy supply fears, nudging back up and reminding the bloc how exposed its terms of trade remain to the conflict. We still retain a modestly constructive medium-term view, predicated on a durably reopened Hormuz easing the eurozone’s energy squeeze. But Thursday’s escalation, and the fragile Israel–Hezbollah truce in Lebanon, keep us wary of turning outright bullish at present.
GBP
Sterling was arguably the standout on Thursday, climbing back above 1.32 as the softer dollar offered respite from a brutal week. The recovery flattered what remains a fragile picture: cable had earlier plumbed multi-month lows, undercut by Tuesday’s dismal flash PMIs, which played out very much in line with the downside risks we had flagged, and by the ongoing vacuum in political leadership. Above all, attention is now squarely on the Chancellorship, Andy Burnham’s plans to fix the economy, and the timing of the next Budget. As we have argued, changing the occupant of No. 10 does nothing to resolve the UK’s underlying fiscal challenges, and the IMF’s warning that Britain faces the largest Iran-war growth hit of any major economy only sharpens the point. With no UK data due, we still see risks skewed to the downside, absent signs of a credible plan from the new Prime Minister.
CAD
The loonie was among Thursday’s outperformers, firming roughly 0.3% to drag back into the 1.41s. Two forces helped: the broadly softer dollar and a near 3% bounce in crude. After four straight down sessions had taken oil back to its pre-war, late-February levels, the reported tanker strike near Oman and freighters turning back in the Strait of Hormuz revived the supply-risk premium, lifting WTI briefly to around $72. With no domestic data on the slate, the loonie will again take its cue from oil and global risk sentiment — both of which now hinge on whether Thursday’s Hormuz flare-up proves a blip or the start of a fresh deterioration in the ceasefire. We remain cautious on the currency: as we noted after May’s contained core CPI, the market’s pricing of a BoC hike by December looks premature to us, and Governor Macklem’s USMCA warning is a live overhang. We continue to expect USDCAD to hold around 1.42 near term, with month- and quarter-end rebalancing an added wildcard into Monday.
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