The focus is on the EURUSD, USDJPY, and GBPUSD as traders begin the US forex trading day. Fed officials are now commenting post-decision, with Adriana Kugler noting first-quarter growth data suggests activity anticipation due to tariffs. She mentions potential inflation risks from tariffs but stresses the economy’s resilience supports the Fed’s gradual approach to inflation reduction.

Michael Barr warns that Trump’s new tariffs could increase inflation, slow growth, and boost unemployment, complicating the Fed’s position should both inflation and joblessness rise. He points to uncertain tariff impacts, possible supply chain disruptions, and strain on small businesses, maintaining the Fed’s adjustable stance.

Us China Trade Relations

Trump, post-UK trade deal, suggests an 80% tariff on China “seems right”, leaving the decision to Treasury Secretary Bessent. A US-China meeting is planned in Switzerland. Senior Trade Advisor Navarro predicts active weekend trade deals, citing the UK deal as a model for agriculture agreements and criticising EU rhetoric as unproductive for ongoing talks.

Canada’s employment report is due, with an expected employment change of 2.5K and an unemployment rate of 6.8%. US pre-market stocks show gains with the Dow, S&P, and Nasdaq up. In US bonds, short-term yields fall while long-term yields rise, with mixed results from recent auctions.

That earlier section draws attention to pivotal exchange rates moving into the US trading session—EURUSD, USDJPY, and GBPUSD specifically. Policy signals are also becoming clearer now that Federal Reserve officials have begun to unpack recent decisions. Kugler’s comments lean on the idea that earlier strength in growth was perhaps front-loaded, a kind of pre-reaction to forthcoming tariffs. She does acknowledge the inflationary risks tied to these tariffs, but believes the Fed is still within its path to taper inflation without an economic jolt.

On the other hand, Barr expresses a sharper concern. He underlines the potential for tariffs to fan the wrong kind of inflation—price rises that come without healthy growth to match. There’s also the added headache of how such policies would ripple through employment figures and the health of smaller firms. His language suggests the Fed is biding its time quietly, knowing it may need to pivot with little warning if external pressures mount suddenly or are mishandled at higher political levels.

Then there’s the trade front, where recent developments are rapidly hardening into positions. Trump floats a tariff rate that would practically isolate Chinese imports, while giving the Treasury Secretary final say. This can’t be read in isolation; the upcoming meeting in Switzerland signals there’s still a channel for direct talk, though perhaps more symbolic than productive at this point.

Canadian Labor Market

Navarro puts his emphasis on weekend progress, possibly overestimating what can be duplicated from the UK agreement, especially in agricultural talks. His swipe at the EU is not just posturing—it might also angle at a rerouting of efforts away from Brussels and towards more pliable partners. If that reading is correct, we should ready for heavier volatility around public comments, particularly if made without coordination.

Elsewhere, Canada’s jobs data has been priced with soft hands—2.5K expected in total net employment isn’t inspiring, and unemployment nudging just shy of 7% underscores a slowly cooling labour market. That could restrain CAD enthusiasm unless wages show unexpected strength.

Markets are leaning slightly risk-on with US equities ticking higher across all major indices. But watch the bond market: it’s telegraphing a growing imbalance. Short-term yields moving lower might reflect rate expectations beyond the summer, while long-end yields rising suggests that inflation and debt supply are quietly becoming problems traders can’t ignore much longer.

We should, in the next few sessions, be cautious extending positions too far in either direction. Rates traders might find some asymmetry in options at the longer-end, especially if supply metrics and auctions remain mixed. The dollar’s recent softness could reverse sharply if China talks stall or if Friday’s Michigan data surprises. But for now, flows appear thin and reactive, not strategic.

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