USD: Dollar eases after Friday’s sharp rise
Risk sentiment recovered and the Dollar eases starting the week after Friday’s fly-to-quality, as breaking geopolitical headlines triggered fresh market optimism. President Trump stated that both Iran and Israel are looking to secure an immediate ceasefire after Iran fired missiles against Israel during the weekend. Meanwhile, Iran officially declared an end to its military operations. This pattern reinforces the view that recent regional escalations are quickly met by a diplomatic push.
However, markets friction with macro reality should keep putting a lid to the recovery. From the macro view, it is getting harder to argue that the US economy is rolling over. May nonfarm payrolls rose by 172,000, well above the 88,000 consensus, while the prior two months were revised up :y a combined 93,000. The revisions matter almost as much as the headline because they lift the underlying trend before May is even added. The unemployment rate held at 4.3%, and labor force participation stayed at 61.8%.
The sector mix backed up the headline. Leisure and hospitality led with a 70,000 gain, including 48,000 in food services and drinking places, while health care added 35,000 and local government rose by 55,000. Financial activities stayed soft, but that was not enough to change the larger picture. Hiring was broad enough. Average hourly earnings rose 0.3% on the month and 3.4% from a year ago, which keeps wage growth firm even if it is no longer accelerating. Labor demand is cooling from the post-pandemic highs, but it is still running too hot for an easy dovish pivot.
The broader policy message is getting more hawkish, not less. The three-month average for payrolls is now close to 188,000, which does not line up with a meaningful slowdown. Inflation expectations are also moving the wrong way for the Fed, with the 5-year breakeven rising to 1.81% and the 10-year to 2.19%. That weakens the case for near-term cuts and strengthens the case for a longer stretch of restraint. The April FOMC easing bias already looks stale, and the debate now looks closer to whether the Fed shifts to a tightening bias as soon as July. Beth Hammack’s line that it may soon be appropriate to act was about as close to a rate-hike hint as a Fed official will give without saying the words outright.
Markets traded it that way. Treasury yields moved sharply higher, led by the front end, with a classic bear flattening move. Risk assets did not like it. The S&P 500 fell 2.3%, the Nasdaq dropped 3.9%, and the Dow lost 1.1%. Gold and silver were hit as well, which says the rate move dominated the inflation story.
For the US Dollar, the conclusion is straightforward. A stronger labor market, firmer wage growth, rising breakeven inflation, and a front-end-led jump in Treasury yields all point in the same direction. At the same time, a stressed market and safe-haven bid added to the equation. The market is trading the Fed that may need to stay restrictive for longer and could still lean back toward hikes, with one increase now priced by the January 2027 meeting. That keeps the dollar supported and keeps dips looking like corrections.
CAD: Too early for the R word
It is too early to use the “R” word for Canada. Two straight quarters of negative GDP have sharpened the debate, but this still does not look like a true recession. The decline has been shallow, not the kind of broad and lasting contraction that would justify that label. The CD Howe Institute sets a high bar, requiring a pronounced, persistent, and pervasive drop in activity. Canada has not met it. The economy has slowed, but it has not cracked.
May’s labour report pushed back against the recession call. Employment rose by 87.8K, well above expectations, while the unemployment rate fell to 6.6% from 6.9%. That was the first meaningful gain since November, and it reversed a large share of the losses from the first four months of the year. One strong month does not settle the story, but it does challenge the idea that the economy is slipping into something deeper. For now, the evidence points to weakness, not collapse.
The quality of hiring also improved. Full-time employment jumped by 154K, while part-time work fell by 66.2K, which is a much firmer mix for household income and demand. Construction led the gains, with support from transportation, accommodation and food services, recreation, and manufacturing. Ontario added another solid month, and Toronto’s unemployment rate fell to 6.8%. Youth hiring also picked up, which suggests a better start to the summer job market than last year.
Wage growth, meanwhile, cooled to roughly 3.0% to 3.2% year over year after a stronger run in prior months. That leaves the Bank of Canada looking at stronger hiring without a fresh wage shock. It is a better combination than the Bank would have expected a month ago. The economy still looks uneven across sectors and regions, and year-over-year job growth remains soft. Even so, the latest data argue against calling this a recession.
The Canadian dollar still lost the broader North American jobs battle. USD/CAD rose Friday from a low near 1.3867 to around 1.3942, with the session high touching 1.3950, as the double beat in jobs on both sides of the border still favoured the US dollar. Markets repriced a more hawkish Fed path, flattened the US yield curve, and pushed the short-term US-Canada yield differential to its highest level since June 2025. That shift outweighed the stronger Canadian labour print and kept the rates backdrop tilted toward the greenback. As the US Dollar eases, the USD/CAD is taking a breather. However, if that repricing holds, the next USD/CAD upside target is 1.397, which would mark the highest level of 2026.
What’s happening in markets this week?
Global markets face a highly active agenda this week, headlined by SpaceX’s record initial public offering. The momentum begins early with German factory orders (Mon) and Japan GDP (Mon), followed closely by the US trade balance (Tue). Investors will then pivot sharply to Oracle earnings (Wed), which will test the sustainability of the AI trade that has powered recent equity gains. Because tech valuations remain a central talking point, this corporate update could easily steer broader market sentiment.
Beyond corporate headlines, monetary policy takes center stage as crucial inflation data and central bank decisions arrive. Wednesday is exceptionally busy, bringing China CPI and PPI (Wed), the vital US CPI (Wed) print, and the Bank of Canada interest-rate decision (Wed). This US inflation data will garner intense interest because rising energy prices complicate matters while the Federal Reserve remains in a blackout period. Immediately after, global focus shifts to Europe for the ECB interest rate decision (Thu), where markets widely anticipate a rate hike. Finally, investors will wrap up the week by absorbing US PPI (Thu), UK monthly GDP (Fri), and the preliminary Michigan sentiment (Fri) reading.
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Calendar: June 08 – 12
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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.
