USD
The dollar began the second half on the front foot, before fading after Chair Warsh’s acknowledgment that inflation risks had come down, alongside an ISM manufacturing report whose prices-paid gauge posted its largest monthly drop since 2022. That mix left the DXY to finish near 101.4 on the day, albeit still below its June 24th peak and consistent with our view that the dollar is topping out. Today’s focus is on June payrolls at 13:30 BST, pulled forward ahead of tomorrow’s Independence Day closure. Consensus sits close to the 115k mark, while unemployment is projected to remain at 4.3%. With markets pricing roughly a one-in-three chance of a hike at the 29 July meeting, we think an in-line print supports no change in rates, keeping our topping-out thesis intact today.
EUR
Wednesday saw the euro slip back again, as we had warned yesterday morning, prompted by soft inflation data and dovish signals from President Lagarde. June HICP growth printed at 2.8% YoY, below market expectations, which had looked for a 3.0% reading, while headline inflation now stands a full six tenths below eurosystem staff forecasts for Q3. Combined with oil back at pre-war levels, and domestic growth seen as weak, we struggle to see a case for further ECB rate hikes from here. Certainly, Lagarde offered little hawkish pushback in Sintra, allowing eurozone rate expectations to ease, and to enjoy an overnight excursion below 1.14. Today brings US payrolls, which should dominate direction. Immediate EURUSD risks look mixed, but we continue to see a growing case for a rebound later in July with Middle East concerns fading.
GBP
Sterling was among the strongest performers yesterday, making solid gains against both the euro and the dollar. That belies the robust political headwinds facing the pound, albeit yesterday the focus was very much on Sintra, and Governor Bailey’s panel appearance alongside Fed Chair Warsh and ECB President Lagarde. While we are inclined to see his comments as dovish relative to current market expectations, these failed to feed into swap pricing yesterday, unlike similar interventions by his counterparts. Today’s domestic calendar is thin, featuring only the BoE’s Credit Conditions Survey, leaving the pound to trade off US payrolls. With political uncertainty unresolved into next week, we retain our downside bias on the pound.
CAD
With domestic markets shut for Canada Day and liquidity thin, the loonie drifted, with holding above 1.42 near recent one-year highs. The main event delivered no surprises relative to our expectations: the first CUSMA joint review concluded with the US declining to renew the agreement in its current form, though the pact remains in force pending resolution of outstanding issues, shifting the deal into an annual review process. We had cautioned against expecting a clean extension, and the outcome confirms that trade uncertainty will linger. Governor Macklem, meanwhile, joined his Sintra peers in stressing price stability, but with the BoC patient at 2.25% against a relatively hawkish Fed, rate differentials remain unhelpful. Today, Canadian markets reopen for their first full session to digest the CUSMA outcome. We continue to see loonie upside capped, with risks skewed toward further temporary weakness if trade tensions escalate.
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