Last week was meant to provide some answers for FX markets, which was the case for the ECB and less so for the US labour market data, with Friday’s payrolls numbers coming in broadly in line with expectations. For now, the euro has not significantly reacted to the events of last week and although we doubt that the measures will weaken the euro as much as many expect, the nature of the new measures mean that their impact is more uncertain than usual, so there will be a close focus once the new measures are in place and start to feed through into the behaviour of banks and also markets.
For this week, we are likely to see a calmer tone to FX. The kiwi will be the main point of interest from a policy point of view, the RBNZ deciding on interest rates on Wednesday, where further increase to 3.25% is expected and a more neutral tone within the statement. This outcome is largely priced into the kiwi, given that many were expecting the shift in tone to occur at the April meeting. The kiwi has underperformed both against the dollar and also the Aussie since that time, so the main risks are with the RBNZ holding rates steady, which would naturally be taken as a negative for the currency.
Otherwise, there remains a sense of sterling continuing to defy gravity. Cable is popping above the 1.68 level at the start of European trade and will be focusing on the labour market data on Wednesday, where further signs of buoyancy could well propel sterling higher on the notion that the debate regarding higher rates is likely to come to the fore.