USD Index Continues Decline

CURRENCY FUTURES

The June US dollar index continued its decline against most major currencies. Rising government debt and a widening budget deficit are weighing on the dollar as fiscal concerns mount over a potential tax-cut bill. The new tax legislation that is making its way through Congress includes hundreds of billions in new tax cuts without any corresponding offsets in spending. Speculation that the dollar could weaken further intensified after reports that Japanese and South Korean officials held currency talks with the US. The June US dollar index is trading around $99.50.

June British pound futures are higher, trading around $1.34. UK CPI inflation for the month of April came in hotter than expected with month-over-month CPI growth of 1.2%; economists were expecting a 1.1% rise. Annualized inflation was 3.5%, vs. expectations of 3.3%, a sharp increase over the previous reading of 2.6%. The strong inflation data will reinforce the Bank of England’s caution in its monetary easing policy.

Euro futures are higher on dollar weakness. The EU lowered its growth forecast by half a percent for the year ending 2025 on Monday, citing higher US tariffs impacting exports. June euro futures are trading over $1.13.

The Reserve Bank of Australia lowered its benchmark interest rate by 25 bps to 3.85% on Tuesday. Headline and core inflation have fallen in the bank’s 2%-3% range, and the unemployment rate is hovering around 4%. Strong jobs and wage growth data have sparked concerns about persistent inflation and may temper the amount of easing this year. June Australian dollar futures are higher on dollar weakness.

STOCK INDEX FUTURES

Futures are lower across the indexes as investors continue to assess the fiscal outlook of the US’s growing debt situation. Investors will be closely watching any potential developments in trade news with the light week of economic data.

On Thursday, the purchasing managers index will give an up-to-date indication of the health of the US manufacturing and services sectors in the US, with this data most likely feeling the impact from tariffs. Most official US data has suggested that the economy is holding up well, although the data is backwards-looking and has not properly captured the impact of tariffs. Although many high tariffs have been scaled back, tariffs of 10% or more remain and are very high by historical standards.

INTEREST RATE MARKET FUTURES

Futures are lower across the curve. Despite a recent credit rating downgrade, significant selling of US Treasurys is unlikely, as most investment mandates do not require AAA ratings for US Treasurys. The Treasury Department will auction $16 billion of 20-year bonds today.

The 10-year Treasury yield rose to 4.53%, and the 30-year yield rose above 5%. The spread between the two- and 10-year yields increased to 53 bps after falling to 48 bps Tuesday.

With the limited economic data this week, focus will shift to speeches from Fed members, although it remains to be seen what new information investors will be able to gather from these speeches. New York Fed President John Williams and Atlanta Fed President Raphael Bostic both signaled that rate cuts are unlikely in the near term in speeches on Monday. Markets are anticipating the Fed to cut rates by 25 bps at the September meeting, with another 25 bps of easing by year-end.

Interested in more futures markets?  Explore our Market Dashboards here.