- Currency futures remain under pressure as the US dollar stays bullish after the Fed’s cautious tone.
- The central bank divergence and weaker data continue weighing on the Euro, GBP, and Yen.
- Markets await key employment and inflation data due this week for fresh impetus.
Dollar-denominated currency futures extended gains last week amid shifting expectations for Fed policy and resilient US economic data. Investors continued pricing in a stronger dollar across the key contracts, with the US Dollar Index (DXY) holding near a 3-month top. The firm dollar reflects the rate differential advantage as the Fed remains cautious about December rate cuts, while other major central banks stay on hold.
The Euro FX futures (6E) found renewed selling pressure from the Euro complex as Eurozone inflation and GDP growth remained weak. Meanwhile, the ECB maintained rates at the current level, reinforcing the odds of a weaker euro by the end of the year. Futures traders reduced their bullish exposure with open interest falling as traders assessed whether the ECB could introduce any meaningful stimulus in 2026. The US-EU yield gap favors dollar-long positions in the near term.
The British Pound futures (6B) also retreated after the Bank of England signaled that inflation risks are declining faster than expected. The pound remains under pressure ahead of the BoE meeting this week as traders anticipate that the BoE will cut rates sooner than the Fed. Moreover, disappointing UK retail sales data and mounting fiscal concerns increased the dovish expectations.
Meanwhile, the Japanese Yen (6J) extended its decline and neared multi-year lows against the dollar. The Bank of Japan’s incremental tightening could do little to support the yen while the new leadership of Japan’s ruling party triggers hopes for a continued stimulus. However, the government intervention risks could keep the downside limited.
On the other hand, the Canadian dollar futures (6C) found slight traction as oil prices ticked while inflation data and the BoC’s rate decision lent further support. However, the currency couldn’t retain the gains against the US dollar amid a wider yield differential.
The currency futures highlight a familiar theme of diverging global monetary paths. The US dollar remains supported by safe-haven appeal and economic resilience. The market participants are now eying the US employment data and the Core PCE Index for more impetus.
