USD: Dollar breaks higher on hawkish momentum
The US dollar strengthened on Friday, entering the 100 zone and breaking above its 99–99.50 trading range that had been in place since mid-May, following a blowout jobs report and renewed tensions in the Middle East. US job growth exceeded all forecasts in May, while the unemployment rate held steady at 4.3%. Nonfarm payrolls increased by 172k after upward revisions to the prior two months – marking the strongest three‑month advance in more than two years. The outcome strengthens the case that labour market momentum may be accelerating after a year of near‑zero job growth, while adding to a streak of solid macro releases that are boosting bets the Fed could consider raising rates this year. Markets are now pricing in just over one full rate hike before year-end.
Meanwhile, the fragile ceasefire between the US and Iran is growing increasingly tenuous, as the weekend saw Israel and Iran exchange missile strikes despite President Trump urging both sides to refrain from further attacks. The renewed tensions complicate the path to peace, with prospects for a US‑Iran deal deteriorating. Brent crude jumped at the open and is now hovering near $97 a barrel.
Higher oil prices and a hawkish repricing of Fed expectations are expected to continue supporting the USD. However, whether the DXY can hold above 100 will hinge on a continued streak of hawkish data releases, along with a not‑so‑dovish tone from Kevin Warsh next week, amid stalled progress on peace negotiations over Hormuz. This week’s CPI report for May – if it confirms an acceleration to 4.2% from 3.8% – would help consolidate that hawkish bias, keeping the dollar supported.
EUR: Risk sentiment cracks, euro follows
The euro suffered its sharpest one‑day decline since early March on Friday, falling more than 0.7% against the dollar and finally breaking convincingly below the 1.16 support level – a move that had looked increasingly vulnerable for weeks as negative macro drivers steadily accumulated.
The pressure on EUR/USD has become broader and more structural. Interest rate differentials have continued to shift back in the dollar’s favour, the eurozone growth backdrop is deteriorating, energy prices remain elevated, and renewed tariff uncertainty is adding another layer of downside risk for Europe’s export‑dependent economy.
Friday’s US payrolls report proved the decisive catalyst. The data reinforced fears that global financial conditions may need to remain tighter for longer, triggering a sharp deterioration in risk sentiment. Global equities sold off, the VIX volatility index moved higher, and the risk‑supportive environment that had previously helped underpin the euro faded abruptly.
Geopolitics added to the softer tone overnight, with renewed exchanges between Iran and Israel further undermining market confidence and supporting haven demand for the dollar.
Technically, the break below 1.16 shifts attention toward the psychological 1.15 level, followed by the year‑to‑date low near 1.1410. Beyond that, the 100‑week moving average near 1.1280 comes into view as the next major support zone.
Attention now turns to this week’s ECB meeting. Markets still expect a rate hike, but the move is increasingly viewed as symbolic or precautionary rather than the start of a sustained tightening cycle. With growth weakening and stagflation risks rising, the ECB’s ability to deliver lasting support to the euro through rates alone appears limited.
GBP: Sterling steady as political risk lingers
GBP/USD came under pressure on solid US jobs growth on Friday, while GBP/EUR – a clearer expression of recent domestic political turmoil – barely budged on news that Andy Burnham, the current Mayor of Manchester, confirmed he would seek to enter any potential Labour leadership contest should he win the Makerfield by-election on 18 June.
The threat still does not feel tangible enough for markets, which have grown accustomed to the gloomy rhetoric surrounding Starmer’s leadership. The timeline also remains unclear, prompting markets to discount the risk for now. GBP/EUR closed last week 0.4% higher.
The week is a quiet one on the data calendar front, while we expect sterling to continue shrugging off political headlines until the risk of a leadership challenge becomes more tangible. We identify 1.16 and 1.1560 as short-term resistance and support levels for GBP/EUR, respectively. We see a mild downside bias, targeting a move back toward 1.1540 should the ECB strike a more hawkish tone in its forward guidance than markets expect this week.
For GBP/USD, the pair broke below the 1.3420 support level on Friday, with further selling likely to build toward 1.33 – the mid-May lows – should US inflation come in hot and no major peace developments over Hormuz materialise.
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Calendar: June 8-12
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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.
