The low-intensity war in the Middle East continues. Crude oil looks set to close the week higher for the first time in three weeks. Meanwhile, some poor earnings have hit the tech sector this week and it is evident in both Asia and the US. A dramatic revision to Ireland’s Q1 growth spurred a downward revision in Q1 eurozone growth to show a 0.2% contraction rather than a 0.1% expansion. Nevertheless, the market remains confident that the ECB will hike rates next week.
The immediate attention turns to the US May employment report. It often elicits a dramatic reaction in the foreign exchange market. The median forecast in Bloomberg’s survey is for an 88k increase. The 150k average in March and April are subject to revisions. Still, given the new Fed chair, the impact on expectations for the June 16-17 FOMC will likely be minimal and this may dampen the reaction today’s report. That said, the intraday momentum indicators appear to favor a dollar recovery ahead of the weekend.
Prices
G10
• The euro held the lower end of its recent range below $1.1600 and recovered to $1.1645 in early North American activity. After the high was recorded, the euro trended back to hover around $1.1610 in late turnover. It transversed the range today. The intraday momentum indicators are stretched, suggesting limited upside and risk of a retreat after the US jobs data. There are options for 1.84 bln euros at $1.1650 that expire later today. Last Friday, the euro reached about $1.1685, its best level since May 14. This week’s high was set Monday slightly above $1.1670.
• The dollar traded sideways yesterday in about a half of a yen range above JPY159.60. It rose steadily from around JPY159.75 to a little above JPY160 in the North American morning yesterday and straddled that are in late dealings. It is stuck in a tighter range so far today, not quite 15 ticks above JPY159.90. Although few appear to have commented on it, we are still struck by the silence from the US Treasury. When the dollar was slightly lower and the US 10-year premium over JGBs was about 30 bp wider, it sent a clear signal to the market. The market is nearly fully pricing in a BOJ hike the day after the FOMC meeting concludes later this month. It seems that the US Treasury’s silence is like “damning by faint praise” and arguably has encouraged the market to shrug-off record BOJ intervention and continue to challenge JPY160.
• Sterling has spent this week, with 1/100 of a cent exception at the start of the week, inside last Friday’s trading range (~$1.3410-$1.3485). Yesterday afternoon, it approached the lower end of that range and the higher end today. The 20-day moving average comes in slightly near $1.3450 today. Sterling has not settled above it in almost two weeks. Intraday momentum indicators are stretched, suggesting risk to the downside in the North American session. Sterling settled near $1.3455 last week. It was the seventh weekly gain in the past eight weeks.
• The Canadian dollar bottomed in early Europe yesterday and recovered through early North American trading. The US dollar reached CAD1.3925, its best level since April 7. It pulled back to almost CAD1.3880 before buyers reemerged. The greenback is trading lower and is near session lows (~CAD1.3875) ahead of the North American open and the intraday momentum indicators are oversold from the drop in late-Asia/early European activity. Initial support is seen near CAD1.3860.
• For three weeks, and a couple of minor intraday violations, the Australian dollar has traded $0.7100-$0.7200. It spent yesterday in the lower half of the range. It approached $0.7100 today but has recovered to $0.7140 in Europe. Respect the price action. Assume the range holds until it does not. Three-month implied vol is straddling 8%, the lower end of this year’s range.
EM
• The Mexican peso traded firmly yesterday but remains within Tuesday’s range (~MXN17.2640-MXN17.3665). Three-month implied volatility is slipping through 9.0% to four-month lows. Given the ~300 bp premium Mexico offers on overnight deposits, one is still paid to be long pesos during the sideways movement of the exchange rate. There are, of course, higher carries, but the peso also has relatively low vol and better liquidity.
• The dollar traded quietly yesterday against the offshore yuan. For the most part, this was CNH6.7580, a multiyear low and CNH6.78. It was turned back the upper end of the range and eased to CNH6.7665. The greenback settled at CNH6.7635 at the end of last week, and a higher close now would be the first in three weeks. The PBOC set the dollar’s fix at CNY6.8157 today. It was set at CNY6.8203 yesterday andCNY6.8176 last Friday.
• Although the Reserve Bank of India kept policy steady, it delivered a hawkish hold and announced new measures to attract foreign capital. This triggered a short squeeze that lifted the rupee by nearly 1%. The dollar fell to around INR94.8885, a four-day low. The central bank announced steps to make it easier for foreign investors to buy Indian stocks and bonds, while the government indicated that taxes for capital gains on bonds investments by foreign investors would be reduced.
Other Markets
• The recovery of US equities yesterday did not help Asia Pacific equities recover today from Thursday’s steep losses. All the large bourses fell today, led by the 5.5% drop in the high-flying South Korean Kospi and the 1.8% drop in China’s CSI 300. Europe’s Stoxx 600 saw follow-through buying today, extending the recovery that began yesterday. The Nasdaq futures are off almost 1% and the S&P 500 futures are down nearly half as much.
• Benchmark 10-year yields in Europe and Americas softened yesterday alongside oil prices and Asia Pacific played a little catch-up today. The 10-year JGB yield slipped fractionally to ~2.64%, leaving it down almost two basis points on the week. Australia’s 10-year yield was off one bp to 4.90% and up 2.5 bp on the week. European yields mostly around one basis point higher lower leaving them up 2-4 bp on the week. Ahead of the jobs report, the 10-year Treasury yield is near 4.47%, about two basis points higher this week.
• The 200-day moving average, near $4428.50 today, is giving bottom pickers in gold something to hold on to, as it were. Still, it is difficult to be too enthusiastic until it re-establishes a foothold above around $4550-60. After recording a marginal new five-session low yesterday, slightly below $72.50, silver recovered but failed to reestablish a foothold above $75. It was sold to a marginal new low since the end of May today, near $71.25 and is near $72.75 late in the European morning.
• July WTI snapped a three-day and nearly10% advance yesterday. It fell around 3.1% to slightly above $93.00. It slipped to a three-day low today near $91.50. Still, it will likely close higher on the week, for the first time in three weeks. Recall that in the previous two weeks, it fell from about $101 to a little below $87.50.
Data
• The US May employment report is front and center today. After averaging 150k new jobs in March and April, a softer report is expected today. The median forecast in Bloomberg’s survey is for an 88k increase in nonfarm payrolls, softer year-over-year growth in average hourly earnings (and falling in real terms), but a steady unemployment rate (4.3%). That said, barring a horrific report, expectations for this month’s FOMC meeting, Warsh’s first, seem practically unmovable with virtually no chance of a change in policy. Meanwhile, in the 12-months since Liberation Day in April 2025, the US has lost about 72k manufacturing jobs. There is nothing intrinsic about the repetitive and often dangerous tasks of manufacturing that make those jobs valuable, but rather it was, arguably, the unionization of that sector that ensured income and benefits. Yet, the service sector employs more than four times as many people in the US.
• Canada also reports May jobs data on today. The median forecast is for 10k increase in jobs, which would be only the second month this year when jobs increased. In the first four months of the year, Canada loss about 112k jobs. In the first four months last year, Canada gained 32k jobs. Nearly all the jobs lost this year are accounted for by full-time positions. Nevertheless, it is widely understood that the Bank of Canada, which meets next week, is on hold with its overnight target rate at 2.25%.
• Much has been written about the eurozone’s under-performance compared with the US. Today, it cut Q1 growth to -0.2% from 0.1% initially will underscore the point. The revision is due primarily to the adjustment from Ireland, where the economy reportedly contracted by 12.1% rather than 2% as previously estimated. The multinational sector in Ireland collapsed by 27%, which overstates the impact on the local economy. A different measure, focused more on domestic demand, grew by 0.6%. Separately, France had previously revised its figures to show a small contraction in Q1. Still look at last year. The US grew by 2.1% and reported a budget deficit of 5.4% of GDP. The eurozone grew by 1.4% and recorded a budget deficit of 2.9% of GDP. Did the US willingness to run such a large deficit, while the economy was growing above what the Federal Reserve says is the long-term growth potential, account for the growth differential?
• Contrary to conventional wisdom, rising real labor income in Japan has not translated to increased consumption. Cash earnings rose 3.5% year-over-year in April, up from 3.1% in March. When adjusted for inflation, real earnings growth accelerated to 1.9% from 1.4%. Yet, household spending fell 0.5% year-over-year in April after the 2.9% decline in March. Household spending has contracted in five of the past six months. Consumption, we have suggested, is more complicated than simply income, and ultimately from an economic point of view it is consumption that is more important than income for driving growth.
• The Reserve Bank of India stood pat today but seemed to signal its intention to lift rates later after it raised its inflation forecast to 5.1% this fiscal year from 4.6% and shaved its growth projections to 6.6% from 6.9%. The key repo rate was kept at 5.25%. Q1 GDP also was reported. It slowed from a revised 8.0% year-over-year to 7.8%, somewhat better than expected. The May CPI will be released next week. It is expected to rise for the seventh consecutive month. It was at 3.48% in April, the highest since March 2025. It ended last year at 1.17%.
Reviewed by Marc Chandler
on
June 05, 2026
Rating:
