USD: US dollar awaits payrolls test
Ahead of today’s US nonfarm payrolls report, the US dollar has stayed firm through the week. Higher oil prices and a flatter US curve have helped, as renewed Middle East tension reminds markets that the conflict still has no clear end. At the same time, a run of solid US data has reinforced the view that the economy remains resilient. That mix has kept the greenback well supported.
The labor backdrop also looks constructive. ADP showed private employers added 122,000 jobs in May, the strongest gain since January 2025, while JOLTS job openings rose to 7.618 million. Bloomberg consensus looks for payrolls growth of 87,000, but another upside surprise would likely give the dollar fresh support. Yields also leave room for that reaction, with the 10-year Treasury near 4.47%, more than 10 basis points above where it stood when April payrolls were released.
Beyond jobs, the services side of the economy still points to steady demand. The ISM services index rose to 54.5 in May, a three-month high, which signals that activity is expanding at a healthy pace. However, cost pressure is building fast, with the ISM prices-paid gauge at 71.3 as businesses pass higher expenses on to consumers. That inflation pulse is becoming more difficult for the Fed to dismiss.
The latest Beige Book adds to that picture. The Fed said Middle East tensions are a key driver of current inflation pressure, and those pressures are now spreading across most districts. With oil rebounding and Treasury yields rising across the curve, markets are leaning hawkish again. In the near term, that should keep the US dollar supported, especially if payrolls beat expectations.
EUR: Oil down, dollar follows ceasefire news
Hopes of a ceasefire between Israel and Hezbollah, following President Trump’s announcement, briefly eased oil prices and softened the dollar. However, the move proved short‑lived after Hezbollah rejected the proposed terms, highlighting the fragility of the de‑escalation narrative.
The range-bound pattern in EUR/USD thus remains intact. Yesterday’s move higher in EUR/USD effectively reversed the previous day’s drop driven by renewed tensions. The pair is stuck in a tight 1.16–1.1650 range, with any interim moves largely negligible – an expression of the hesitant path to peace.
Today brings the release of the US jobs report for May. A meaningful upside surprise could see EUR/USD test 1.16. That said, we doubt a more sustained move lower absent a significant re-escalation in the Middle East. We continue to believe market hawks may remain on the sidelines until the Fed’s June meeting – Kevin Warsh’s first – before re-engaging more decisively, as markets assess the new chairman’s policy posture given his debated profile.
GBP: Caught between competing forces
Sterling has performed well over the past week, appreciating against most of its major counterparts. The exception has been the US dollar, where a combination of firmer oil prices and robust US data has applied some modest downward pressure. Even so, GBP/USD continues to demonstrate resilience above 1.34, trading in a tight, one-cent range that has persisted for much of the past month.
At the moment, GBP/USD remains largely rangebound and that reflects a balance of opposing forces in the current market regime. On one side, elevated oil prices are acting as a drag on sterling, given the UK’s sensitivity to energy costs. On the other, resilient equity markets, are supporting risk sentiment and, by extension, GBP/USD. What’s important here is that FX doesn’t react to one input in isolation. It absorbs signals from across markets (commodities, equities, rates, and more) but those drivers don’t operate equally or simultaneously. Instead, markets establish a hierarchy, where certain forces dominate at any given time.
Right now, that hierarchy is clearly visible: GBP/USD is showing a strong positive relationship with equities and a negative one with oil, while rate differentials, typically a key driver, are playing a less decisive role.
But this is regime-specific. These relationships are not fixed, and history shows that rate differentials, in particular, tend to reassert themselves over time. So, the current rangebound behaviour isn’t a lack of movement – it’s the result of competing forces offsetting one another under the current market lens.
Turning to the data docket, attention will be on the Bank of England’s Decision Maker Panel survey, which may provide early signals on second-round inflation effects. That said, the spotlight will shift swiftly to the US, with the latest jobs report expected to dominate and set the near-term tone for markets.
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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 quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
