- Currency futures activity rose amid shifting global policy, inflation, and capital flows.
- The US interest rate expectations and yield advantages shaped the dollar’s strength.
- The yen remains under pressure amid the BoJ’s expansionary stance, while the ECB’s shifting expectations lift the euro.
The currency futures markets witnessed a broader improvement in market activity as the global policy, inflation expectations, and international capital shifted. The Eurozone inflation data and European Central Bank decisions influence the Euro FX contract (6E). Meanwhile, the Yen futures (6J) mirror the shifting expectations regarding Japanese macroeconomic policy.
The US-China trade talks boost market optimism as President Trump and Xi discussed a preliminary framework. Both countries are expected to sign a deal in South Korea later this week. The move pushed Asian and European equities to fresh highs, weighing on the greenback.
On Friday, the US CPI data revealed an easing trend in inflation to 3% YoY, reinforcing the odds for a Fed rate cut of 25 bps in the FOMC meeting this week. As a result, the US dollar remained subdued while the Euro, Pound, and other non-USD contracts were.
From a broader economic outlook, the US dollar’s strength in future markets is not limited to spot movement. The projected direction of US interest rates and US rate differentials play a vital role.
The expectations of Fed easing and yield advantage underscore dollar-denominated contracts. On the other hand, non-USD primary currency futures such as the Yen futures (6J) face pressure. The move stems from expecting an expansionary path, reducing the yen’s demand. Conversely, Euro futures benefit from the speculation that the ECB will end the easing cycle soon, bolstering Euro-denominated contracts.
Moving ahead, multiple catalysts drive the outlook of currency futures. Robust US inflation data and the Fed’s hawkish remarks could lift the greenback, weighing on non-USD futures like the Australian dollar futures 6A). In contrast, any tightening or less accommodation by major banks like the BoJ and the ECB could favor those currency futures.
