CAPITALDIGEST MARKET REVIEW, 08/06/2026

POUND HEADS FOR THIRD WEEKLY GAIN AS STEADY OIL SOOTHES INFLATION FEARS

The pound edged up on Friday, set for a third weekly gain versus the dollar, ahead of major U.S. jobs data, as a steadier oil price ​encouraged investors to dip into more volatile currencies like sterling. With peace talks between ‌the United States and Iran stalled and, in the absence of another round of hostilities, Brent crude futures held around $95 a barrel. The pound, along with the Australian and New Zealand dollars, got a boost ​from improved investor risk appetite, as well as from a Bank of England survey ​that suggested British businesses expect to raise prices less quickly in the ⁠year ahead then they did in April, as some of the initial energy price ​shock caused by the Iran war fades. Sterling , which has edged up 0.1% so far this ​week against the dollar, was up 0.3% at $1.346. The euro was a touch weaker against the pound, drifting 0.1% to 0.8639 pounds. “This all helps cement another “on hold” decision from the Bank of England later ​this month. We know officials put a lot of faith in this survey. And it ​also questions the need to hike interest rates in general,” ING strategists said in a note. Money markets ‌show ⁠traders expect no move from the BoE when it meets later this month, with the first rate hike expected around September and a roughly 50% chance of a second by year-end . A rate hike would normally boost the appeal of a currency, but with UK ​growth faltering and inflation ​picking up, higher ⁠borrowing costs stand to hurt the consumer and businesses. On the data front, British house prices unexpectedly fell by 0.1% in May, leaving ​them 0.5% higher than a year earlier, data from mortgage lender Halifax ​showed on Friday. The ⁠median forecast in a Reuters poll of economists had predicted a monthly house price rise of 0.1% and an annual rise of 1.0%. Key for investors will be the release of the ⁠monthly ​U.S. nonfarm payrolls report later on Friday, which is ​expected to show an increase of 85,000 in May, compared with a rise of 115,000 in April.

DOLLAR FIRMS AFTER STRONG US JOBS DATA, PUSHES YEN THROUGH 160 LEVEL

The dollar was higher on Friday and set for a more than 1% weekly gain after the U.S. economy posted ​another month of strong employment gains in May. Nonfarm payrolls increased by 172,000 jobs last month, the Labor Department’s Bureau of Labor ‌Statistics said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 85,000 jobs after a previously reported 115,000 rise in April. The number sent the dollar up sharply against the yen, which has been testing the 160-per-dollar barrier this week, drawing sharp warnings from Japanese officials as Middle East tensions have underpinned ​safe-haven demand. The yen was last down 0.08% against the dollar at 160.150. It was headed for a fourth straight weekly loss against the ​dollar, having unwound gains from official buying in late April and early May. The 160-per-dollar mark has previously triggered intervention and ⁠its proximity prompted another warning from Finance Minister Satsuki Katayama, who said Japan was ready to respond at any time and reserved the right to take “decisive action” ​against excessive volatility. The Bank of Japan is widely expected to raise interest rates this month, as higher energy import costs add to price pressures. Money markets also ​point to a second hike by year-end.Investors widely expect the Fed to leave rates unchanged when it meets this month, according to CME’s FedWatch tool. “The bar to a Fed change is very high, and I don’t think this cuts it,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “I still think there’s a good chance of a ​hike before the end of the year, but we’ll have to see.” The euro fell after the release of U.S. jobs data, and was last down ​0.75% at $1.152, despite expectations of up to three European Central Bank rate hikes this year. The pound fell 0.64% to $1.33.continue “From a euro perspective, the perpetuation of elevated energy prices ‌remains a ⁠drag on activity there,” CIBC Capital Markets head of G10 FX, Jeremy Stretch, said. Peace talks between the U.S. and Iran are at a stalemate, and a reignition of hostilities this week has kept oil above $90 a barrel, raising risks to global growth. Iran has reaffirmed support for its Lebanese ally Hezbollah and demanded Israel withdraw from southern Lebanon, underscoring complications facing an interim deal to end the broader conflict between the U.S. and Iran. Iran has made ​a ceasefire between Israel and Hezbollah a ​condition for any peace deal ⁠with Washington to resolve the regional war, now in its fourth month, and restart shipping through the Strait of Hormuz. “It’s back to square one as far as the resumption of peace negotiations between the U.S. and Iran is concerned,” ​said David Morrison, senior market analyst at Trade Nation, in a research note. “But, as has been the case ​since the end of ⁠March, investors have chosen to look past the current hostilities on the assumption that the war will soon end.” The dollar has been the stand-out in foreign exchange this week, rising 0.63% against a basket of major currencies and around 1.3% over the past month. It has been supported by strong U.S. data, expectations for ⁠Federal Reserve ​rate hikes and safe-haven demand amid concerns about the impact of higher energy prices – due ​to the closure of the Strait of Hormuz – on importers such as the euro zone, Japan and China. In cryptocurrencies, bitcoin was set for a 19% weekly drop after hitting its lowest level ​since February. It was last down 6.63% at $59,373.

CANADIAN DOLLAR WILL STRENGTHEN IF PROGRESS MADE IN USMCA REVIEW: REUTERS POLL

Canada’s dollar will strengthen over the coming year against its U.S. counterpart so long as the domestic economy recovers and progress is made in the ​review of a continental trade pact, a Reuters poll showed on Thursday. The median forecast ‌of 31 foreign exchange analysts in a May 29 to June 3 poll was for the Canadian dollar to gain 1.4% to 1.37 per U.S. dollar, or 72.99 U.S. cents, in three months – slightly weaker than the ​1.3667 forecast in a survey last month. In 12 months, the loonie was expected to ​be up 3.7% at 1.3400, compared with 1.3433 in the previous forecast. Canada had ⁠a positive meeting with the U.S. on the review of the United States-Mexico-Canada Agreement, the minister responsible ​for Canada-U.S. trade, Dominic LeBlanc, said in Washington on Tuesday. The trade deal has shielded most ​of the country’s exports from U.S. tariffs. “The Canadian dollar needs to see progress and eventually resolution of the USMCA talks before it can strengthen durably,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets. Until then, ​it’s going to be challenging for the loonie as the economy remains under pressure from the ​uncertainty and as U.S.-Iran headlines whip the market around,” he added. Indeed, the Organisation for Economic Co-operation and ‌Development warned ⁠on Wednesday that the entire global economic outlook hinged on how long the conflict in the Middle East lasts. Data on Friday showed the economy unexpectedly slipped into a technical recession in the first quarter, reducing expectations for Bank of Canada interest rate hikes this year even as some Federal Reserve policymakers ​turn more hawkish. The Canadian ​two-year bond yield has ⁠fallen about 35 basis points further below its U.S. equivalent in the past month to a spread of around 125 basis points. Still, analysts ​doubt the economic downturn will persist. We expect “the Canadian economy will stabilize in ​H2 this ⁠year and accelerate next year, led by a stabilization in the real estate sector, improving investment climate and fiscal policy,” said Mirza Baig, a foreign exchange strategist at Desjardins. Prime Minister Mark Carney has said he ⁠would ​prioritize lowering the cost of living in Canada, tackling a ​housing shortage, and building major infrastructure projects to help make the economy less dependent on the United States.

STERLING STRUGGLES FOR DIRECTION AS IRAN TALKS AT IMPASSE

The British pound was little changed ​against the dollar and euro on Wednesday, with investors remaining focused on the conflict ‌in the Middle East, and the impact a prolonged war would have on monetary policy. Talks to end the war remain at a stalemate, while hostilities flared again on Wednesday as an Iranian missile attack damaged Kuwait’s airport and ​the U.S. military carried out strikes near the Strait of Hormuz.That pushed up oil ​prices on Wednesday, with Brent crude futures trading at their highest level in ⁠a week. Britain’s greater reliance on imported energy leaves it more exposed than the United States to ​higher global fuel costs. While prices have eased from their late April highs, they remain significantly ​above their levels before the U.S.-Israeli attacks on Iran on February 28 that ignited the war. The pound was last down about 0.1% against the dollar at $1.3447, within the middle of its recent range. Against the euro , sterling was ​little changed at 86.34 pence. Investors are betting that the Bank of England ​can wait before hiking rates and have lowered expectations for future hikes from the start of the war. Money market ‌futures ⁠are not fully pricing in a quarter-point rate hike until the September meeting, while just under two hikes are priced by the end of the year. The market has given the Bank of England a window to wait this out, as long as the Strait (of Hormuz) opens pretty soon,” said ​Gustav Helgesson, macro strategist ​at SEB. “Obviously it will ⁠depend on what happens with underlying inflation, but as long as we don’t see any big surprises there, the Bank of England could sit ​this out and, from a rate-differential perspective, this should weaken the pound.”If ​there was an ⁠end to the war, it could also ease pressure on the public finances, which could act as a positive for sterling, Helgesson added. In contrast to the BoE, the European Central Bank is widely expected to ⁠raise ​interest rates when it meets next week, while investors are ​starting to bring forward their expectations for rate hikes from the Federal Reserve given recent resilient U.S. data and growing price pressures.

EURO FAILS TO NAB BIG MARKET SHARE FROM DOLLAR DESPITE ERRATIC US POLICY, REPORT SHOWS

The global role of the euro currency hardly budged ‌last year, disappointing some hopes that erratic economic policy in the United States could give it a big boost, as investors moved into gold and smaller currencies instead, an ECB report showed. ECB President Christine Lagarde has long argued that the euro could become a viable alternative to ​the dollar and unpredictable U.S. policy created a “global euro moment”, if policymakers only enacted long-stalled financial reforms. The euro ​now has about a 20% market share across a broad set of indicators, a touch ⁠higher than last year, but still far below levels seen two decades ago, as gold and smaller, non-traditional reserve ​currencies have been making big gains at the expense of the dollar and the euro. “There is an opening for the euro ​to enhance its global appeal – provided that European policymakers create the necessary conditions and put words into action,” Lagarde said in the ECB report on Tuesday. For this to happen, she said, the bloc needed to reinforce economic resilience, legal and institutional integrity and geopolitical credibility. The euro ​made its biggest gain in the issuance of international debt denominated in euros, which exceeded $1.1 trillion last year, its ​highest level since the currency was created, helped by relatively low costs and tight margins. The issuance of so-called Reverse Yankee bonds, or debt ‌issued by ⁠U.S. firms in euros, then swapped back into dollars, rose nearly 50%, supporting the surge. But the euro’s role in foreign exchange reserves fell 0.5 percentage point to 20.2%, far below the dollar’s 57% share, suggesting that reserve managers avoid abrupt changes to strategic investment benchmarks, even during heightened geopolitical uncertainty. Investments were also moving heavily into gold with central banks and ​private investors buying unusually large ​volumes. Private investment into gold doubled ⁠last year to 2,200 tons while central banks bought 850 tons, below the 1,000 tons in the previous year but still well above levels prior to Russia’s invasion of ​Ukraine. With gold also included in official reserves, its share has exceeded that of the euro ​and U.S. Treasuries, ⁠though much of this increase is down to higher gold prices and not only new purchases. The euro suffered the biggest setback in daily foreign exchange trading, though this was due in large part to a surge in dollar hedging, prompted by the ⁠greenback’s unusually ​large volatility on a raft of policy announcements, especially around tariffs. Still, others ​managed to gain, particularly the Chinese renminbi, as its share is now 9%, the ECB said. “There is no room for complacency,” Lagarde said. “Forces of fragmentation ​are becoming more pronounced.”