- Currency futures remain subdued amid global risk aversion.
- The US dollar surged as the safe-haven demand increased after US attacks on Iran.
- Markets are now eyeing US PMI, Canada’s CPI and Powell’s testimony.
Currency futures experienced a surge in volatility as the week started. The escalating geopolitical tensions and evolving monetary policy expectations keep the traders on edge. The US dollar continued to benefit from the safe-haven flows while the commodity currencies and risk-sensitive assets retreated in response to Middle East turmoil and mixed macroeconomic data.
The Dollar Index hovered near 99.00 area on Monday, supported by the renewed geopolitical risk premium after the US military airstrikes hit three Iranian nuclear facilities over the weekend. President Trump confirmed this via Truth Social, intensifying further regional conflict. Iran responded with a vow of “everlasting consequence” and approved to shut down the Hormuz Strait which is a key waterway to global oil exports.
Euro and pound futures saw selling pressure as investors weighed sluggish economic indicators. The Euro futures slipped amid subdued German industrial data and mixed European PMI readings. Meanwhile, the ECB officials continued to maintain a cautious tone, prompting a scale back on rate cut bets.
Meanwhile, the British pound futures continued to struggle with a weak UK retail sales data, dragging on sentiment. Although the Bank of England kept rates steady, declining inflation may shift the rate cut balance towards end of the year. Markets now expect a 60% probability of BoE’s rate cut by November.
Commodity currencies like Australian and Canadian dollar underperformed due to risk-off flows. The Australian dollar futures saw a sharp decline, reaching 5-week lows amid rising RBA rate cut bets in July meeting, combined with weaker Chinese data. Canadian dollar remains weak but may find a floor amid rising oil prices due to Iran-Israel conflict.
Contrarily, the Japanese yen futures gains remained limited despite global risk aversion as the Bank of Japan maintained its ultra-loose policy. The yen futures remained steady, though the downside remains limited amid Fed’s potential easing in September.
Looking ahead, the market participants will be closely watching Fed Chair’s testimony along with Canada’s CPI and US PMI readings.
