Forex News

TD Securities’ FX strategists Jayati Bharadwaj and Howard Du note that stronger United States (US) payrolls produced only a modest reaction in the US Dollar (USD), as markets focus more on inflation than labor data. With the Federal Reserve’s (Fed) 2026 path now tied to the energy shock’s pass-through to core prices, they expect choppy USD trading and see near-term downside as elusive without progress in the Middle East.

Dollar reacts modestly to strong jobs

"The stronger than expected payrolls report had a modest reaction in the USD. We have flagged that the Fed path for the year now leans much more on how much the energy shock from Q1 will pass through to core inflation, rather than on labor market conditions (as long as they remain stable). This could potentially be why markets are reacting more to the softer wage growth data in the report rather than the stronger headline jobs number."

"We have flagged that the Fed path for the year now leans much more on how much the energy shock from Q1 will pass through to core inflation, rather than on labor market conditions (as long as they remain stable). This explains the timid reaction in the FX space, and the CPI report next week will be more closely watched."

"In the absence of fresh new catalysts, we continue to expect choppy USD price action in the near-term. Hawkish FOMC dissents and US data resilience has made near-term USD downside more elusive with positive developments on the Strait of Hormuz needed for the USD selloff to continue."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Nomura’s George Buckley and team argue that even a swift resolution to the US-Iran war and reopening of the Strait would not necessarily stop the European Central Bank (ECB) from raising rates in June. They now expect two ECB hikes in June and July 2026, brought forward from 2028, as higher energy prices push Euro area inflation above target.

War impact supports earlier ECB tightening

"Inflation is coming in above target in H1 2026 due to the Iran war."

"We expect higher energy prices to dampen euro area growth due to the economy’s heavy reliance on energy imports."

"We have brought forward our two ECB rate hikes (previously 2028) to June and July this year as a result of higher energy prices."

"As and when markets shift into de-escalation gear regarding the US-Iran war, we consider whether a resolution of the war and a reopening of the Strait would prevent the ECB from raising rates in June and July, which is our base case."

"We believe the ECB could still justify a June rate hike, to send a signal that it won’t leave inflation expectations and inflation unchecked."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Royal Bank of Canada (RBC) economist Claire Fan notes that Canada lost 18,000 jobs in April, bringing total job losses in 2026 to 112,000, while the unemployment rate rose to 6.9%. Hours worked were flat and participation increased. Rising unemployment is attributed to weak hiring rather than layoffs, with RBC expecting resilient domestic spending to gradually improve labour conditions later this year.

RBC sees hiring weakness but fewer layoffs

"Canada lost 18,000 jobs in April, adding to declines in earlier in the year for a cumulative loss of 112,000 in 2026 to date."

"The unemployment rate ticked back up to 6.9%, matching last April's level. Hours worked remained essentially flat, and the labour force participation rate increased. Critically, and consistent with earlier trends, rising unemployment was driven not by layoffs but by weak hiring."

"Permanent layoffs in Canada continued to decline in April, sitting 10% below their October 2025 peak. Instead, unemployment rose as more workers left their jobs to seek new positions and new labour market entrants struggled to find work."

"We continue to look through near-term volatility, and expect resilient domestic spending from consumers, businesses and governments will support gradual improvements in labour conditions later this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• US job creation beats expectations in April, with 115K new jobs added versus 62K expected.
• The US Dollar weakens despite solid employment data as markets focus on easing geopolitical tensions.
• Pound Sterling remains supported despite Labour Party losses in UK local elections.

GBP/USD advances around 1.3630 on Friday at the time of writing, up 0.54% on the day, benefiting from broad US Dollar weakness following the release of the US employment report.

The Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 115K in April, well above market expectations of 62K. March’s figure was also revised higher to 185K from the previously reported 178K. Meanwhile, the Unemployment Rate remained steady at 4.3%, in line with forecasts.

Annual Average Hourly Earnings growth came in at 3.6%, below the 3.8% expected, easing inflation concerns and supporting expectations that the Federal Reserve (Fed) could still move toward monetary easing in the coming months.

Investors are also favoring risk-sensitive assets amid persistent optimism surrounding discussions between the United States (US) and Iran, despite reports that the US military carried out airstrikes targeting several tankers near the Strait of Hormuz. As a result, the US Dollar Index (DXY) falls toward 97.90 despite the resilience of the US labor market.

On the UK side, the Pound Sterling (GBP) remains relatively stable despite the first results from local elections in the United Kingdom (UK). Prime Minister Keir Starmer’s Labour Party has lost control of several local councils, while Nigel Farage’s Reform UK continues to make strong gains. Nevertheless, Starmer stated on Friday that he is not considering resignation.

Comments from the Bank of England (BoE) are also providing support to the British currency. Governor Andrew Bailey warned that the central bank could act “forcefully” if Middle East tensions continue to drive energy prices and inflationary pressures higher. The BoE kept its policy rate unchanged at 3.75% at its latest meeting while leaving the door open to further tightening if needed.

• Consumer confidence is expected to ease in May.
• One-year inflation expectation cooled a tad to 4.5%.

American consumer confidence is expected to have deflated in early May, as households have been growing more pessimistic about current conditions and the broader economic outlook, according to preliminary data from the University of Michigan.

The closely watched Consumer Sentiment Index receded to 48.2 from 49.8 in the previous month, missing economists’ expectations (49.5) and signalling some weaknening in public confidence.

Furthermore, the Current Conditions index edged lower to 47.8 from 52.5, while the Expectations gauge improved marginally to 48.5 from 48.1, highlighting a tepidly upbeat scenario for the months ahead.

Inflation expectations, meanwhile, appear to have cooled somewhat: the one-year outlook eased to 4.5% (from 4.7%), and the five-year forecast decelerated to 3.4% (from 3.5)%.

Market reaction

The US Dollar remains well offered, flirting with the area of multi-week lows and sending the US Dollar Index (DXY) back below the 98.00 threshold.

• EUR/USD strengthens as mixed US labor market data keeps pressure on the US Dollar
• Markets remain cautiously optimistic over a potential US-Iran deal despite ongoing tensions around the Strait of Hormuz.
• The US Dollar Index slides back toward pre-war levels as safe-haven demand eases.

The Euro (EUR) strengthens against the US Dollar (USD) on Friday as the Greenback remains under pressure following mixed US labor market data. At the time of writing, EUR/USD is trading around 1.1777, up roughly 0.44% on the day.

Data released by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls (NFP) increased by 115K in April, beating market expectations of 62K but slowing from March’s 185K gain (revised from 178K). Meanwhile, the Unemployment Rate held steady at 4.3%, in line with market expectations.

Average Hourly Earnings rose 0.2% MoM in April, missing expectations of 0.3% and matching the previous reading. Annual wage growth accelerated to 3.6% from 3.4%, though it remained below the 3.8% forecast.

Taken together, the data is expected to support the Federal Reserve’s cautious approach, reinforcing expectations that policymakers may remain patient before resuming monetary policy easing, particularly as upside risks to inflation have risen amid elevated Oil prices and ongoing tensions in the Middle East.

However, markets remain cautiously optimistic that the US and Iran could eventually reach a deal to end the war, despite fresh reports of clashes between US and Iranian forces near the Strait of Hormuz.

US President Donald Trump downplayed the latest tensions on Thursday, saying the ceasefire remains in place as Washington awaits Iran’s response to the latest US proposal, with Tehran expected to deliver its reply through Pakistani mediators in the coming days.

This cautious optimism is weighing on the Greenback, which has slipped back toward pre-war levels as investors scale back safe-haven demand for the US Dollar. As a result, EUR/USD remains on track to end the week in positive territory for the second consecutive week.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 97.90, down roughly 0.40% on the day.