Written by the Market Insights Team
Oil and uncertainty light a fire under the dollar
Antonio Ruggiero – FX & Macro Strategist
As widely expected, the Fed kept interest rates unchanged yesterday for a fourth consecutive meeting, maintaining a cautious stance as it waits for more clarity on the economic impact of the Trump administration’s evolving policy agenda. The Fed’s median estimate for inflation at the end of 2025 was raised to 3% from 2.7%, while forecast for economic growth in 2025 was marked down to 1.4% from 1.7%. Chair Powell’s comments on the inflationary pressures of tariffs revived the Fed’s previously muted, uncertainty-driven hawkish tone.
This shift helped resolve some of the recent tug-of-war around the U.S. dollar. On one side, expectations of a more dovish Fed—fueled by a string of softer U.S. inflation and labor market data—had been weighing on the dollar. On the other, rising geopolitical tensions in the Middle East this week lent support to the greenback, with the DXY briefly pushing above 98.800 on Tuesday before paring gains.
Behind the façade of safe-haven appeal lies the true driver of the dollar’s rebound: rising oil prices, now hovering near a five-month high. Since most global oil trades are settled in U.S. dollars, surging crude demand tends to drive additional demand for USD. This rebound in sentiment is also reflected in the options market, where—for the first time since April—traders have backed off from bearish dollar positions.
Escalating tensions could amplify this further. Senior U.S. officials are reportedly preparing for a potential strike on Iran in the coming days. President Trump added to the uncertainty, stating he has ‘ideas as to what to do’ but prefers to make a ‘final decision one second before it’s due.’ Should the U.S. become directly involved, a combination of lingering safe-haven demand and surge in oil prices could drive another leg higher for the dollar.
For now, with some of the more policy-specific bearish pressure easing, and a touch more clarity on the horizon, the DXY broke above the 98.800 level yesterday and landed above the 99 zone during the early hours of today’s London session. Yet as broader U.S. sentiment remains negative, yield differentials stand as the dollar’s last pillar of support—insufficient on their own to drive material upside unless sentiment shifts.
Canada’s population growth hits pause
Kevin Ford – FX & Macro Strategist
According to Statistics Canada, Canada saw virtually no population growth during the first quarter of 2025, adding just over 20,000 people, an increase so slight it rounds to zero percent. This marks the slowest start-of-year growth in decades, second only to a COVID-era decline in 2020. What’s behind the stagnation? A continued cooling of immigration levels, both temporary and permanent, which began in 2024 under federal policy changes. In fact, international migration was the only source of population growth, as natural increase (births minus deaths) remained negative, reflecting the ongoing impacts of an aging population and low fertility rates.
On a provincial scale, some of Canada’s most populous regions, Ontario, British Columbia, and Quebec, actually saw their populations edge downward, hitting record quarterly declines for Ontario and B.C. since the 1950s. The number of non-permanent residents dropped sharply too, down by over 61,000, driven largely by a steep fall in study permit holders, particularly in Ontario and B.C. Still, there were bright spots: Alberta led the country in growth, and immigration levels, while lower than recent years, remain historically high. It’s a snapshot of a country in demographic transition, navigating the balance between welcoming newcomers and responding to long-term population shifts.
In FX markets, the Canadian dollar pulled back as traders digested a more hawkish tone emerging from the Federal Reserve’s updated ‘dot-plot’ projections. With Fed officials signaling a firmer commitment to keeping interest rates elevated, the greenback gained ground for a second straight session. This renewed strength in the US dollar acted as a cap on the USD/CAD pair, preventing any sustainable breakout beyond the 1.365 level.
Meanwhile, sentiment in the FX options space has taken a noticeable turn in the last couple of weeks. Traders have reduced their bullish bets on the Loonie, with positioning shifting to a more neutral stance, an indication of growing caution amid shifting macro signals. As the market recalibrates expectations around US monetary policy, Canadian dollar bulls are treading more carefully.
Euro steady, sterling slips
Antonio Ruggiero – FX & Macro Strategist
EUR/USD pulled back from its recent high of $1.1615 earlier in the week, dipping into the $1.14 zone during early U.S. session yesterday. The drop reflected renewed demand for the dollar, driven by a lingering safe-haven appeal and a spike in oil prices amid ongoing conflict in the Middle East.
That said, hawkish ECB messaging continues to lend support to the euro. ECB policymaker Villeroy echoed Lagarde’s remarks from a couple of weeks back, saying the bank is well positioned to navigate ongoing uncertainty. On the data front, Germany’s ZEW expectations index surprised to the upside on Tuesday, nearly recovering to pre-Liberation Day levels. This is good news: while EUR/USD continues to follow broader dollar dynamics, a euro-positive home-grown momentum would help buffer against a deeper correction if the US outlook were to improve meaningfully.
Shifting to EUR/GBP: the pair extended its winning streak to three sessions, trading near £0.8560. The move followed softer UK CPI, which slowed to 3.4% y/y in May from 3.5% in April. This reinforced expectations for a more dovish Bank of England, with two rate cuts now priced in by year-end. The BoE is expected to hold rates steady at 4.25% today.
No shift, just signals
George Vessey – Lead FX & Macro Strategist
The Bank of England (BoE) is expected to leave rates unchanged at 4.25% today, with the vote likely to split 7-2. But the risk of a more dovish 6-3 outcome has increased because of growing concern over a faster-than-expected labour market easing. The British pound remains under pressure this week, down over 1% versus the USD and dipping under $1.34 this morning due to global risk aversion as geopolitical tensions in the Middle East rise.
Away from external uncertainties though, UK data flow has been weak of late. Wage growth now looks set to undershoot the BoE’s May forecast, and unemployment has already hit levels previously expected for end-Q2. A 109k drop in PAYE employees in May and a vacancies-to-unemployment ratio well below the BoE’s neutral benchmark further weaken the case for holding rates purely on labour tightness grounds.
Recent inflation data offers a mixed picture. Yesterday’s consumer price index (CPI) remained sticky, though services CPI came in below forecast. But with Brent crude up over 20% this month, inflation risks have re-emerged – possibly complicating the BoE’s path.
Still, this is not a Monetary Policy Report (MPR) meeting, meaning no updated forecasts or press conference, so market focus will fall squarely on any tweaks to the guidance. Therefore, despite soft growth (April GDP at –0.3% m/m) and a cooling labour market, we think today’s meeting is more about tone than action. Expect the minutes to flag the labour market’s rapid loosening and possibly introduce a more dovish bias going into the August MPR.
Markets are now pricing in 50 basis points of easing for 2025, in line with the BoE’s well-telegraphed quarterly cut tempo. Nonetheless, uncertainty remains elevated, and if incoming data in the months following the meeting today continues to underperform the BoE’s expectations, policymakers could pivot toward favouring a more accelerated and front-loaded rate-cutting path in the latter half of 2025, which could weigh on sterling.
The FX impact may be muted short term, but we maintain a cautious stance on GBP, largely due to its sensitivity to global risk sentiment. But the pound also remains vulnerable to a fading UK growth story and a potentially weaker yield appeal if more easing is priced in. GBP/EUR is now trading below all of its key daily moving averages, with little in way of strong support until €1.15, whilst GBP/USD’s 50-day moving average, located at $1.3381, is the next key support level, below which the 100-day moving average comes into focus all the way down at $1.3064.
US Dollar sustains gains after hawkish Fed
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: June 16-20
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quote
