Global overview
The U.S. dollar hovered near recent lows ahead of America’s monthly jobs report. The euro firmed after a central bank-inspired retreat while the Canadian dollar rose to two-week highs and sterling ascended to its strongest in more than 11 months. The dollar was on track for a weekly decline after the Fed raised rates as expected but didn’t dispel market expectations for rates to fall by year-end. What the Fed lacked in a firm steer on the future path for U.S. interest rates could be gleaned from today’s April nonfarm payrolls report. Forecasts call for job growth to moderate to an increase of 180,000 from March’s gain of 236,000. Unemployment is expected to tick up to 3.6%. Outcomes in line or better than expected would augur a steady to higher outlook for U.S. interest rates, while any disappointing news could sound the recession alarms and strengthen the case for the Fed to lower borrowing costs, a dollar negative scenario. After rising to two-week highs, the Canadian dollar will look to domestic jobs data that hasn’t disappointed all year. Canadian hiring is forecast to cool to an increase of 20,000 from nearly 35,000 in March. Slower hiring is expected to nudge unemployment to 5.1% from 5%, still historically low terrain.
Euro fails to capitalize on higher rates
The euro was broadly flat for the week despite another hike in area borrowing rates that raised them to 2008 highs of 3.25%. The ECB’s 10th straight hike was a smaller 25 basis point increase while the central bank emphasized how its 375 basis points in tightening since mid-2022 were “forcefully” impacting the economy by making it more difficult for consumers and businesses to obtain loans. The ECB’s more dovish tone suggested area lending rates may be closer to peak levels than previously thought which could come as a relief for the greenback if it can retain more of its yield advantage.
Sterling flirts with 1-year highs
Sterling rose to more than 11-month highs8 against the U.S. dollar as attention turned to the Bank of England following rate hikes this week from the Fed and ECB. The BOE issues a rate decision on May 11, when it is all but certain to boost borrowing costs by at least 25 basis points from 4.25%. Going forward, the BOE may a hawkish edge over the Fed and ECB, given Britain’s lofty double-digit rate of inflation. Stubbornly high inflation suggests the BOE may need to remain on a higher rate path longer than its major peers which would help it narrow its current yield disparity versus the greenback.
C$ notches 2-week peak
The loonie had its rally to two-week highs validated after another solid Canadian jobs report. Canada added 41,400 jobs in April which was more than two times stronger than forecasts of a gain of 20,000. Robust hiring kept unemployment at a low 5% compared to forecast to edge up. The data offers more evidence of a resilient Canadian economy and keeps the bar high for the Bank of Canada to move off the sidelines and cut interest rates by year-end.
Dollar jumps after jobs report allays recession fears
The U.S. dollar strengthened after strong hiring and low unemployment allayed both recession concerns and prospects for interest rate cuts later this year. America netted some 253,000 jobs in April, a stronger than expected amount that unexpectedly nudged unemployment to half century lows of 3.4%. Higher wages, meanwhile, suggested the Fed may not be done raising borrowing rates which is dollar friendly. Annual wage growth increased by 4.4%, above forecasts of 4.2%. While solid, the data contained a fly in the ointment as hiring was downgraded in February and March by a combined 149,000 jobs.
Dollar holds above its lows
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 1-5
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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.
