USD: Between inflation and the next headline
Global markets are navigating intense volatility as the Middle East conflict stretches into its sixth week. The situation is escalating further now that Iran has turned down a US truce offer delivered through Pakistan. Instead, Iranian officials are insisting on a permanent end to the fighting and secure navigation guarantees through the Strait of Hormuz. Meanwhile, risks to civilian infrastructure are rapidly growing. The US has warned of potential strikes on bridges and power grids, while Iran countered with threats against regional desalination facilities. US President Trump intensified pressure ahead of tonight’s deadline from the White House, keeping escalation risks elevated.
These mounting tensions are heavily impacting the energy sector and fueling fresh inflation concerns. Following reports that US forces plan to target Iranian energy sites, WTI crude oil quickly surged past $111 a barrel. This rapid rise in energy costs is clearly rippling through the broader economy. Recent service sector data shows a significant jump in costs paid by businesses, marking the most dramatic increase observed since 2012. Interestingly, this inflation spike occurred even as overall service activity and related employment metrics actually cooled down last month.
Despite these global headwinds and rising costs, the domestic labor market remains incredibly complex and surprisingly resilient. March delivered much stronger payroll figures than anticipated, bouncing back from a slow February with healthy momentum in the healthcare, construction, and manufacturing sectors. However, this underlying strength sits alongside a truly historic anomaly. The economy has bounced back and forth between adding and shedding jobs for an unprecedented eleven straight months, easily shattering the previous historical record of six months established in the late 1960s.
While the recent job gains provide a welcome bright spot, investors remain incredibly cautious about the road ahead. The current three-month average of 68,000 new jobs comfortably exceeds the updated Federal Reserve benchmarks needed to keep unemployment steady. Still, unpredictable variables loom large over the economy. If oil prices keep climbing due to overseas conflict, we will likely see widespread demand destruction that eventually hurts corporate hiring. Ultimately, navigating a prolonged international standoff means that ongoing market unpredictability is simply here to stay.
Beyond geopolitical risks, inflation takes center stage this week. Investors will closely monitor mid-week bond auctions and the latest FOMC minutes (Wed) for insight into how the Federal Reserve is weighing global instability against domestic policy. Inflation remains the most critical variable, with core PCE (Thu) and CPI data (Fri) expected to show a notable jump in annual price pressures. These macro updates coincide with the launch of quarterly earnings season. Reports from Delta Air Lines, Exxon, and Shell will provide a first look at how major industries are navigating today’s complex economic landscape.
EUR: Stuck in a range
EUR/USD has unwound sharply since the Middle East conflict began, sliding from 1.19 to just above 1.14 as risk aversion surged and the terms‑of‑trade shock swung decisively in favour of the US. That move made sense regardless of broader scepticism around US policymaking. A further escalation on the ground in Iran would almost certainly drag the pair lower again — but whether 1.14 finally cracks is the key question.
Technically, the euro remains pinned around its 21‑day moving average, still searching for direction. The pair has been trapped in a 1.14–1.16 range since mid‑March, with the 50‑week moving average at 1.1622 acting as a firm ceiling for four straight weeks. With resistance intact, real‑yield dynamics unfavourable, and Europe’s energy vulnerability unresolved, EUR/USD continues to screen as a sell‑on‑rallies market until the broader risk backdrop stabilises.
The fundamentals reinforce that bias. The initial impact of the oil‑and‑shipping shock is already visible in forward‑looking survey data. Global manufacturing PMIs show lengthening supplier delivery times, rising input costs, and firmer output prices. In the euro area specifically, factory input costs rose at the fastest pace since October 2022, while selling prices increased at the quickest rate in more than three years — a clear sign that Europe’s energy‑intensive industrial base remains exposed to further supply disruptions.
Meanwhile, the US economy — though slowing — continues to show relative resilience, particularly after last Friday’s jobs report. That contrast matters: a sturdier US backdrop paired with Europe’s energy‑linked fragility keeps the balance of risks tilted toward a softer euro.
In short, the euro’s attempts to recover lack both technical and macro support. Until energy pressures ease and Europe’s inflation dynamics stabilise, EUR/USD rallies are likely to remain shallow and short‑lived.
CAD: Canadian Economy faces crucial spring tests
Canada’s economic engine is still struggling to find its rhythm this spring. The latest S&P Global March data shows both the services and composite indices stuck in contraction for a fifth consecutive month. Although the services index nudged up to 47.2 from February’s 46.5, it remains strictly below the crucial 50-point threshold. The broader composite index tells a very similar story, rising slightly to 47.6. Interestingly, while employment figures in these sectors hit their highest levels since August 2025, they still represent a seventh straight month of overall job shedding.
This ongoing economic sluggishness is clearly weighing heavily on overall market confidence. Recent futures positioning data reveals that sentiment around the Canadian dollar remains slightly bearish, with net contracts currently sitting near negative 39,000. Major institutional players like asset managers and leveraged funds are maintaining a cautious distance from the Loonie.
Looking ahead, the USD/CAD’s upcoming direction will largely depend on key US data, including Wednesday’s Fed minutes and the crucial PCE and CPI inflation reports later in the week. If US inflation prints hot and above expectations, it could easily supercharge the greenback’s momentum. Meanwhile, if Canada’s upcoming labor report pushes the March unemployment rate to the expected 6.8%, a weak domestic jobs print would further justify the central bank’s cautious stance and add more fuel to the pair’s ongoing climb.
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Calendar: April 6 – 10
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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.
