- Currency futures slip on Monday as dollar surges on reduced Fed rate cut bets.
- Euro, pound, yen, Aussie, and CAD remain under pressure amid domestic economic data.
- Markets are now repositioning ahead of delayed US macro data releases.
Currency futures slipped on Monday as the US dollar extended gains for the second consecutive session, as the December Fed rate cut expectations faded. The CME FedWatch tool now shows a 43% probability for the next rate cut, down sharply from 67% a week ago.
Euro futures (6E) extended a correction from 2-week highs as traders are reluctant to add long positions ahead of delayed US data releases. The NFP data for September is now due on November 20, which will provide meaningful guidance for the rate expectations. However, officials have warned that October data may never be compiled due to the shutdown.
Yen futures (6J) also retreated as Japan’s economy contracted in the Jul-Sep quarter, its first decline in six quarters. The 0.4% contraction in the quarter shows that the Bank of Japan cannot hike rates soon, while PM Sanae Takaichi pushes a new stimulus package and reiterates the need for ultra-loose policy. However, traders remain reluctant to take aggressive short positions amid the heightened risk of FX intervention. Japan’s Finance Minister Satsuki Katayama and Economic Minister Inoue Kiichi warned last week that excessive yen weakness could lead to higher inflation, limiting deeper losses in 6J.
Pound futures (6B) also declined as concerns about the UK’s fiscal position and softening economic data weighed on the market. The BoE rate cut expectations in December rose to 80% following speculation that the UK Prime Minister, Starmer, and Finance Minister, Rachel Reeves, would scrap the income tax hike plans. This came ahead of the November 26 UK budget, when wage growth cooled while GDP remained sluggish.
Australian dollar futures (6A) also turned down, despite stronger labor data, which added 55.3k full-time jobs. On the other hand, RBA’s Hauser left dovish comments, noting that the central bank may no longer be restrictive, pushing traders to bet on rate cut speculations. Markets are also watching the US-China agreement on rare earth minerals for further impetus. Canadian dollar futures (6C) also struggled as crude oil prices remained weak, while traders awaited Canada’s inflation data.
Across the futures curve, the US dollar remains strong as policymakers signaled caution on near-term easing. According to Minneapolis Fed President Neel Kashkari, the labor markets look strained. At the same time, St Louis President Musalem said that rates are now “close to neutral” but require caution to avoid premature easing. Currency futures are expected to experience high volatility, as they prepare for an intense wave of delayed US data.