Dollar Lower as SIFs Jump

CURRENCY FUTURES

The USD index is lower after Fed Chair Michelle Bowman, who is seen as a long-time hawk, said that the Fed should consider interest rate cuts soon, even as soon as July. Bowman, who is the Fed’s vice chair for supervision, said the time to cut rates may be approaching soon as worries about risks to the labor market grow and that she is less concerned about tariffs impact on inflation. The dollar was also pressured as safe-haven demand fell following the shaky ceasefire between Israel and Iran and as Iran’s retaliatory strike on a US base in Qatar was seen as restrained, with reports that the US and Iran said there would be no more strikes between each other.

Euro futures are higher, getting a boost from a lower dollar following the developments in the Middle East. Business confidence in Germany improved this month, with the Ifo Institutes business climate index rising to 88.4 in June from 87.5 in May, higher than the expected 88.0. This comes as private sector activity in the Euro Area largely stabilized as Germany’s economic activity returned to expansion, while France saw a further contraction per recent PMI data. Meanwhile, markets continue to expect a 25-basis-point rate cut by the European Central Bank in September, which would lower the key deposit rate to 1.75%.

British pound futures are higher as the sterling gained against the dollar following the announcement of a shaky ceasefire between Israel and Iran. Flash composite PMI for the UK beat expectations and showed a modest growth over May’s reading, with composite PMI coming in at 50.7 for June, a step above May’s 50.3. Manufacturing PMI came in at 47.7, beating expectations of 46.9 and higher than May’s 46.4, showing that manufacturing activity contracted less than forecasted, while services PMI edged out expectations with a reading of 51.3. The pound remained under pressure following last week’s Bank of England decision to hold rates steady. The vote was more dovish than anticipated, with three of nine MPC members supporting a rate cut, versus an expected 7–2 split. The BoE cited persistent inflation and geopolitical risks, warning of “two-sided risks” and expecting inflation to stay elevated through 2025.

Japanese yen futures are higher as the yen advances against the dollar. Manufacturing PMI in Japan for June expanded for the first time since May 2024 with a reading of 50.4, beating expectations of 49.5. Services PMI in June also grew over May’s figure with a reading of 51.5. On Thursday, Tokyo’s consumer price data is expected to show persistent inflation. Core consumer prices, excluding fresh food, are forecast to have risen 3.3% in June from a year earlier, down slightly from May’s 3.6% gain. The government is also scheduled to release employment and retail sales figures for May on Friday.

Australian dollar futures are higher, lifted by a weaker dollar, as the risk-sensitive currency was supported by the news of the ceasefire in the Middle East. May inflation data will be released on Wednesday in what has been a string of relatively tame inflation readings over the last couple of months, which has opened the door for the Reserve Bank of Australia to resume rate cuts. Markets are pricing in a July rate cut this year from the central bank, while in its last meeting, the RBA cited growing global risks to its economy and seriously considered a 50 bps rate cut.

INTEREST RATE MARKET FUTURES

Futures are lower across the board, with yields higher at the long end of the curve and lower at the front end as the bond market digests the ceasefire between Israel and Iran and dovish comments from Fed officials. Federal Reserve policymaker Michelle Bowman, who is a well-known hawk, said Monday the US central bank should consider cutting interest rates soon. Bowman, the Fed’s vice chair for supervision, said the time to cut interest rates may be fast approaching as she has grown more worried about risks to the job market and less concerned that tariffs will cause an inflation problem. Chicago Fed President Austan Goolsbee also said on Monday that thus far the surge in tariffs has had a more modest impact on the economy relative to what was expected.

Focus this week on the economic front will be data Friday on the US core personal consumption expenditures price index for May. This is the Federal Reserve’s preferred measure of inflation and could provide insights on the trajectory for interest rates. Last week, the Federal Reserve left interest rates unchanged and maintained a cautious, data-dependent stance. Fed Chair Jerome Powell warned that inflation could accelerate in the coming months, in part due to the inflationary impact of recently imposed tariffs by President Trump. Powell will address lawmakers Tuesday in the House and Wednesday in the Senate. Investors will likely tune in for clues on the Fed’s next moves.

US regulators this week are expected to weigh one of the largest rollbacks of bank capital rules since the 2008 financial crisis, which would give a major victory to banks looking to loosen lending requirements. The Federal Reserve will consider the change on Wednesday, which would affect the so-called enhanced supplementary leverage ratio (eSLR), a rule that calls for the largest US banks to hold additional minimum capital based solely on their size. The FDIC is also expected to discuss the proposal Thursday. The change to this key capital ratio is designed to make it easier for banks to lend freely and to create an even bigger pool of buyers for US Treasurys during a period where there is rising concern over foreign demand for US debt. Treasury Secretary Scott Bessent previously signaled that regulators were close to easing this capital rule as part of a broader deregulatory push by the Trump administration.

Market participants continue to pay close attention to the tax and spending bill making its way through the Senate right now, which is set to provide some short-term stimulus but also increase the size of the US debt load over the next decade. The bill would also raise the debt ceiling by $5 trillion and add to expectations that the US Treasury Department would need to increase the size of its bond issuance in order to continue financing the government’s growing debt problem. Yields on longer-dated US Treasurys have risen as a result, as investors demand a greater return for debt they feel is less secure while the market remains sensitive to the Treasury Department’s funding strategy.

The 10-year Treasury yield is 4.35%, and the 30-year yield is 4.89%. The spread between the two- and 10-year yields rose to 49 bps from 45 bps on Monday.

STOCK INDEX FUTURES

Stock index futures are higher after President Trump announced a ceasefire between Iran and Israel, which has gotten off to a rocky start with both sides claiming violations and exchanging strikes. President Trump said he was unhappy with the continued attacks by both countries and urged Israel not to drop bombs.

Stock index futures experienced a volatile day Monday, bouncing between session highs and lows, ultimately finishing higher as markets saw Iran’s strike on a US military base in Qatar as largely symbolic and restrained. There was also relief that the strike was not close to the Strait of Hormuz or any oil infrastructure. Markets also got a boost after Fed Governor Michelle Bowman said she could support a July interest-rate cut.

Existing home sales in the US rose by 0.8% from the previous month to a seasonally adjusted annualized rate of 4.03 million in May of 2025, rebounding from the 0.5% drop in the previous month and above market expectations of a drop to 3.96 million units sold. The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market. Increasing participation in the housing market will increase the mobility of the workforce and drive economic growth.

New home sales figures are due Wednesday; durable goods orders, the third estimate of US first quarter gross domestic product, weekly jobless claims, and pending home sales are due Thursday, followed by PCE inflation and the final June University of Michigan consumer confidence survey Friday.

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