Good morning, and happy Friday. The dollar is heading for a second week of losses and oil prices are drifting lower after yesterday’s exchange of fire in the Strait of Hormuz failed to shift Donald Trump’s rhetorical stance, reinforcing investor confidence in the US eventually finding an off-ramp in the conflict. The president said the ceasefire agreed in early April remained in effect, describing the situation as a “trifle” after Tehran launched a series of missile, drone, and boat-swarm attacks on US warships in the Gulf, prompting retaliatory strikes on Iranian military targets and port facilities. Brent crude is trading just below $100, West Texas Intermediate at $94, Treasury yields are coming off their highs, equity futures are pointing to small gains at the open, and most major currencies are edging higher ahead of this morning’s twin job reports from the US and Canada.

The peso is firming in line with its counterparts after the Banco de México cut its benchmark rate by a quarter point and retired its easing bias yesterday, surprising no one. Officials said the governing board “deemed it appropriate to conclude the cycle that began in March 2024,” adding that “it will be appropriate to maintain the reference rate at its current level” going forward. Policymakers raised their headline inflation forecasts but noted that “economic slack is expected to be greater than previously anticipated,” with “significant downward risks” ahead implying an “absence of demand-related pressures” on prices. Traders expect the next move—a hike—to come in early 2027, with rate pricing essentially unchanged from pre-decision levels.

Currency markets displayed no discernible reaction when a US trade court struck down the Trump administration’s latest round of global tariffs, declaring the levies “invalid” and “unauthorized by law,” marking the second major judicial defeat in recent months. In February, the Supreme Court found the White House had exceeded its authority in imposing sweeping nation-by-nation tariffs under the International Emergency Economic Powers Act; Trump moved the same day to replace them by invoking Section 122 of the Trade Act of 1974, a never-before-used provision permitting temporary duties of up to 15% to address “large and serious” balance-of-payments deficits. The court held that no such deficit exists, and that the administration had conflated a trade deficit with a balance-of-payments crisis—a distinction we noted at the time, and that the government itself had previously conceded. The ruling, which for now applies only to the small-business plaintiffs that brought the suit, is widely expected to be appealed to the Federal Circuit, even as the administration pursues a “plan C” through Section 301 investigations already under way—caveats that will limit its macroeconomic impact for now.

The British pound is gaining even as early results show the ruling Labour Party on course to lose roughly two-thirds of its seats in the local council elections now underway. In what amounts to a relative relief for gilt markets, Nigel Farage’s Reform seems to be inflicting the bulk of the damage, with the Greens falling short of the numbers needed to force a leftward shift within the government. Although Prime Minister Keir Starmer is still likely to face a leadership challenge in the months ahead, investors think the likely contenders will share his commitment to fiscal credibility, leaving the country’s budgetary trajectory broadly intact.

This morning’s US non-farm payrolls report isn’t likely to shake markets out of their placidity. Although labour market momentum should continue slowing in today’s print with just 65,000 roles added in April, a slightly lower unemployment rate and relatively-stable participation levels should point to continued tightness, alleviating any serious implications for the Federal Reserve’s policy trajectory. Instead, Tuesday’s US consumer price index update could generate some volatility, with another outsized headline reading—particularly if paired with a reacceleration in core services inflation—carrying the potential for forcing yields and the dollar higher.