US: Failed diplomacy and the energy driver
While failed diplomacy in early US–Iran talks has grabbed some headlines, it was largely anticipated given the deep diplomatic divide between the two sides. The real market catalyst is Washington’s decision to impose a naval blockade on Iranian ports, a move that has quickly tightened the energy market and driven oil prices sharply higher.
Despite Tehran’s threats against Gulf shipping, the regional ceasefire, though fragile, remains broadly intact outside Lebanon. That combination of contained geopolitics and rising energy costs has triggered a familiar market pattern seen since early March: higher oil, softer risk assets, and a brief bid for the dollar. Without further escalation, however, the dollar strength looks timid, even as elevated energy prices increasingly feed into the inflation outlook.
A tale of two stories in the March CPI report. Headline prices jumped a widely expected 0.9% m/m (taking inflation to 3.3% y/y), but the core picture stayed relatively calm at 0.2% m/m and 2.6% y/y, both a touch softer than markets feared. That “dovish” core signal matters, but it’s running headlong into the reality that the Fed’s preferred gauge, PCE, has been firmer because of sticky services inflation and different weighting for big-ticket categories like housing and healthcare. Add in the pre-war backdrop from February, PCE inflation at the highest in a year, income growth turning negative, and spending up just 0.1%, and you can see why the consumer didn’t exactly enter this shock in great shape.
The problem, of course, is energy, because it’s doing all the talking right now. The energy index surged 10.2% in March, with gasoline up 21.9%, and gas alone accounted for nearly three-quarters of the monthly CPI increase. That’s the initial wave of the Middle East conflict showing up in the data, and it’s unlikely to be the last: a lot of the second-round pressure (think transportation, travel, and food) tends to arrive with a lag, so April could look even hotter even if core inflation remains “well-behaved.” The squeeze is already visible in the real economy, real wage growth slowed to 0.3% from 1.3% previously, and there’s a real risk it turns negative in April if energy stays elevated. Even if March hiring rebounded after weather-related softness in February, a spike at the pump can quickly offset any wage bounce and weigh on sentiment via a negative wealth effect.
Markets, interestingly, are choosing to lean into the softer-core interpretation, for now, as investors were braced for a nastier print. But that market optimism is exactly what leaves the Fed stuck: CPI is offering a moment of relief on core, while PCE’s sturdier services backdrop argues the 2% target is still a slow grind rather than a quick glide path. And since this energy “rocket” will almost certainly bleed into the next PCE release, even if PCE’s broader scope captures some consumer substitution, the Fed has to balance an energy-driven inflation shock against a labor market that’s not convincingly cooling. Net: traders may edge up cut expectations at the margin, but policymakers will want more evidence that core disinflation can persist and that energy isn’t about to re-accelerate the broader inflation story.
EUR: Escalation returns but euro stays calm
Despite the renewed escalation risk, EUR/USD’s reaction has been remarkably muted. The pair is still hovering near 1.17, close to its highest level since the conflict began, underscoring that FX markets are still trading more on signs of peace than signs of escalation. The breakdown in talks, the spike in oil and gas, and the US move toward a naval blockade would normally have driven a sharp euro selloff. Instead, the euro has barely budged.
Perhaps, because the US is now more directly entangled in the conflict, and the blockade raises worldwide inflation risks, that blunts the relative disadvantage for the euro and prevents a clean USD‑positive, EUR‑negative impulse. Or maybe, the dollar’s haven demand is far softer than in February as investors become conditioned to geopolitical volatility, and the initial panic premium that turbocharged USD upside earlier in the conflict simply isn’t being rebuilt.
Still, the euro’s resilience should not be mistaken for strength. Europe remains structurally more exposed to energy‑price volatility, and any sustained rise in crude or gas tightens financial conditions and revives the growth‑inflation squeeze that capped EUR/USD earlier in the conflict. The burden of proof remains on Europe: energy stability, shipping safety, and evidence that the growth drag is manageable.
For now, EUR/USD appears to be supported by USD fatigue, not by EUR optimism and the currency pair will only fall meaningfully again if escalation becomes both sustained and unambiguously Europe‑negative.
CAD: Labour market steady but still sluggish
Canada’s labour market didn’t do much in March: employment rose 14.1k (basically on top of the 15k consensus) and the unemployment rate stayed at 6.7%, so markets largely yawned and the CAD barely budged, still hovered near the week’s weaker levels around 1.38. Starting the week during overnight session, the CAD moved as high as 1.387 on failed diplomacy efforts between US and Iran but has moved lower, trading closer to its 20-day SMA (1.383) as we enter ET hours.
In terms of the labor market, the bigger context matters here too, this was only a partial give-back after roughly 109k jobs were lost in January and February, reinforcing the idea that, through the month-to-month noise, the labour market is still pretty sluggish, especially as the economy adjusts to US tariff-related headwinds.
Under the hood, the composition wasn’t especially comforting: the gain was mostly part-time, with part-time employment up ~15k while full-time was slightly negative/flat (about -1k). That kind of mix fits with a cooling demand backdrop, employers are adding hours and flexibility rather than committing to permanent, full-time headcount. At the same time, wages surprised to the upside: average hourly wage growth for permanent employees jumped to 5.1% y/y versus 4.3% expected, the strongest pace since mid-2024. So you end up with a report that looks “steady but soft” on jobs, yet still a bit “sticky” on pay, exactly the combination the Bank of Canada has been trying to balance as it flags slower activity and ongoing trade uncertainty even while holding policy steady.
The other theme worth highlighting is the immigration/population shift and how it’s interacting with a slow labour market. Canada has seen a notable population slowdown after the surge in temporary residents since 2022, and in March the labour force grew only ~0.1%, which helps explain how the unemployment rate can remain stable even when job growth is only modest.
Net-net: despite the headline “in-line” print, the full-time/part-time split and the shifting population impulse both point to a labour market that’s holding together but not really accelerating.
Not a lot of high-impact macro calendar action during this week in both Canada and the US, FX should stay tied to developments coming from Middle East after failed diplomacy, and specially the oil market, which after a short reprieve, sees the WTI trading above $100 a barrel again. The CAD is poised to stay range-bound and could re-test the 1.38 if optimism and risk-on regain some momentum. Upside momentum now looks capped at 1.387/1.39.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
What’s happening in markets this week?
This week’s focus stays firmly on geopolitics and policy signals, with markets watching for any developments after the failed diplomacy and the fallout from the Strait of Hormuz risks. The global macro backdrop then shifts to the IMF‑World Bank Spring Meetings (Mon–Fri), where growth and inflation risks from the war will dominate discussions and remarks from senior officials, including the US Treasury Secretary, the BoE Governor, and the ECB President.
On the data front, attention turns to the US PPI inflation (Tue), China GDP and activity data (Tue), Fed Beige Book (Wed) and Eurozone CPI and ECB minutes (Wed), alongside a heavy slate of US bank earnings (Tue–Fri) as Q2 earnings season starts in the US. Results from Hungary’s election are also expected to land early in the week, adding a political overlay in Europe.
Key global risk events
Calendar: April 13-17
All times are in EST
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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.
