- Currency futures remain primarily driven by the global monetary policy divergence.
- Dollar softness amid expected Fed easing remains a central theme for futures markets.
- Yen remains a strong performer amid bets on rate hikes and safe-haven flows.
Currency futures opened the week on a steady footing but stayed cautious, with traders positioning around divergences in global monetary policy. As expectations for the Fed rate cut intensify, while other central banks vary in their pace, the shift in yields is driving volatility in FX futures.
Dollar softness remains the central theme for futures markets, with the December Fed meeting expected to deliver a 25 bps rate cut. Fed funds futures and SOFR pricing have reflected a dovish tone over the last two weeks, weighing on the Dollar Index (DXY) and creating a ripple effect across Euro, Pound, and Yen futures.
Euro FX futures remain consolidating around the recent highs as traders await Eurozone preliminary HICP data. Headline inflation is expected to tick up slightly to 2.2%, reinforcing market expectations that the ECB will hold rates steady. As a result, the 6E futures stay range-bound, reflecting softening US yields and a non-committal ECB.
Meanwhile, the British Pound futures (6B) are holding firm after a week of mixed UK releases. Though the growth remains sluggish, stabilizing inflation expectations and improving labor markets have kept the pound supported. The UK budget has also provided sufficient support to the currency, helping to mitigate the fiscal deficit.
Yen futures (6J) have surged as the BoJ signals its clear intent to raise rates. Governor Ueda warned that delaying tightening could reignite inflation. The JGB yields are hitting multi-year highs, strengthening the yen.
AUD futures (6A) continue to track the global risk appetite and commodity flows. A cautious market tone and softer Chinese demand expectations have capped the upside for Aussie. However, the dovish Fed remains supportive, limiting the downside.
The Canadian dollar (6C) remains balanced between weaker oil prices and a softer US dollar, leaving the markets in a consolidation phase.
Overall, the currency futures markets are driven by the global rate divergence, with the yen benefiting from the safe-haven demand while the Euro and Pound gain amid expected US easing.