The week of June 8 had no shortage of catalysts. US CPI came in at 4.2% YoY on Wednesday. PPI followed at 6.5% YoY on Thursday. The Bank of Canada held for the fifth consecutive meeting. The ECB raised rates. Trump signalled an end to the Iran war, sending oil down more than 8.5% by Friday. By the time markets closed on June 12, the dollar had softened modestly, risk appetite had recovered from Wednesday's lows, and the FOMC meeting on June 16-17 was the only thing left on the calendar that matters.
What happened with the Canadian dollar this week?
The story of CAD this week is a tale of two halves. Early in the week, the BoC held its overnight rate at 2.25% for a fifth consecutive meeting on June 10, citing weak economic activity, persistent US trade policy uncertainty, and elevated oil prices from the Middle East conflict. That is not a hawkish hold. Canada slipped into a technical recession in Q1 with GDP declining 0.1% annualised, and unemployment is running between 6.5% and 7%. The BoC held because it had to balance inflation risk on one side against a softening economy on the other, not because conditions were strong enough to hike.
Then oil crashed. Trump predicted the Iran war would end this weekend, and WTI fell more than 8.5% on the week to around $84 per barrel, the largest weekly decline since the conflict began. For Canada, which exports roughly 4 million barrels per day, a sustained drop in oil prices is a direct hit to terms of trade and fiscal revenues. USDCAD traded in a 1.3959-1.3990 range through Friday, ending the week near 1.3967. The pair held near the 1.40 level that has capped CAD strength for months.
What did the ECB do and what does it mean for EURUSD?
The ECB raised its key rate to 2.25% this week, prompted by inflation pressures linked to the energy fallout from the Iran conflict. EURUSD traded in a 1.1557-1.1590 range on Friday, finding modest support from the ECB hike and slightly softer dollar tone. The rate gap between the Fed (3.50-3.75%) and the ECB (2.25%) narrowed marginally, which is directionally supportive for EUR, but 125 basis points of differential still keeps carry strongly in the dollar's favour.
Germany's HICP came in at 2.7%, matching forecasts. Growth in the euro area remains subdued. The ECB hike is a response to energy-driven inflation, not a sign of strong underlying demand, which limits how much the rate move can shift the structural EURUSD setup.
Why is sterling under pressure despite a crowded short position?
GBPUSD traded in a 1.3384-1.3426 range on Friday, largely ignoring disappointing UK data. March GDP came in at -0.1% MoM, as forecast but still a contraction. April manufacturing production rose 0.4% MoM, below the prior 1.2%. CFTC COT data shows net non-commercial shorts at -64,061 contracts, up from -51,483 the prior week. Shorts are getting heavier, not lighter.
A position this crowded does create potential squeeze risk if any positive UK catalyst materialises. But with GDP contracting, manufacturing slowing, and the BOE in the 4.25-4.50% range after a series of cuts, the fundamental case for sterling is not strong. The shorts are crowded for a reason.
What is the USDJPY setup into the BOJ next week?
USDJPY closed the week near 160.23, holding above the 160 level that has prompted verbal intervention from Japanese officials repeatedly this month. Net speculative yen shorts sit at -151,841 contracts per the latest COT data, among the most crowded short positions in G10.
The BOJ meeting next week is the dominant event for this pair. Markets are widely pricing a rate hike, but the more consequential question is whether Governor Ueda opens the door to further hikes in 2026. A single hike is mostly priced. A hawkish forward guidance signal is not. That is what triggers the unwind of -151,841 short contracts.
USDJPY at 160 with the most crowded short in G10 heading into a BOJ meeting where a hawkish surprise is possible is not a comfortable setup for yen shorts. The risk is asymmetric.
What does the week's macro data mean for the FOMC dot plot?
The FOMC meets June 16-17, with the decision and dot plot at 2:00 PM ET on June 17. That is Fed Chair Kevin Warsh's first dot plot as chair. He inherited a labor market adding 172,000 jobs in May, CPI at 4.2% YoY, PPI at 6.5% YoY, and core PPI accelerating 0.8% MoM. The oil crash on Iran deal signals is the one disinflationary development of the week, and it is meaningful: if WTI settles near $80-84, the energy component that drove headline CPI to 4.2% starts to reverse in the June and July prints.
CME FedWatch shows 99.4% probability of a hold at 3.50-3.75% on June 17. The rate decision is not what moves the market. The median dot is. If Warsh's first SEP signals a hike path, the long end reprices higher and the dollar rally resumes. If the dot plot holds steady and Warsh uses ambiguous language about the inflation trajectory, risk assets and commodity currencies get a short-term bid.
The 10-year ended the week near 4.47%, down from Wednesday's 16-month high of 4.69% but still well above the 4.20-4.30% range that prevailed before the CPI print. The curve remains in bear steepener territory. That does not resolve until the inflation pipeline does.
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