- The US dollar weakens across major currency pairs as deficit concerns and rate cut bets thicken.
- Aussie and Pound futures soar amid better data and improved risk sentiment.
- Geopolitics and trade worries keep markets cautious while month-end flows increase volatility.
Currency futures opened the week with strong footing amid the mounting fiscal pressure from the US and growing consensus on the Fed’s rate cuts this year. The US dollar fell broadly against major counterparts in the futures markets, led by declines in the DXY and gains in Euro, Pound, Aussie, CHF and JPY futures.
The President Trump’s expansive tax bill and spending bill passed in the US House of Representative which renewed the fears of long-term deterioration of US fiscal position. The proposed legislation is speculated to add $3.8 trillion to the deficit in next one decade. This comes due to already soft economic outlook and recent inflation data, weakening price pressures.
Weaker than expected US CPI and PPI earlier in May added more to the Fed’s dovish bet leading to at least two rate cuts by end of 2025. This can put the US dollar at disadvantage due to rate differential with other currencies.
Meanwhile, the British Pound and Australian Dollar outperformed on the futures market. Sterling gained after printing solid UK retail sales data last Friday while elevated inflation reading could urge the Bank of England to pause the rates in June meeting.
The Aussie lifted amid improved risk sentiment after Trump delayed imposing 50% tariffs on EU imports. The delay will be valid till June 09. The move also supported global equities and increased demand for risk sensitive currencies.
However, the risk sentiment remains fragile and US-China trade tensions can resurface after the US restricted Huawei’s access to Ascend AI chips. These developments could temper the recent optimism.
Despite the bank holiday in the US and the UK, the trading activity in the futures market is remarkable on Monday as markets brace for several reports throughout this week. Investors will keep an eye on US Durable Goods Orders, GDP revisions and the Core PCE Price Index along with Australia’s inflation data.
