It was a relatively calm end to the week in FX markets last week, but this was against the backdrop of a structural change in sentiment towards the dollar after the Fed meeting and their re-assessment of the longer-term prospects for the economy and rates. In essence though, they are still playing catch-up with the currency pricing in the market, which has not yet fully priced one increase in rates before the end of the year. Still, we saw some recovery of the dollar on Friday, after the push below new lows for the year on the dollar index. This has continued overnight most notably against the British pound, cable pushing back below the 1.43 level, with sterling still subject to some longer-term pressure on the back of the Brexit story. The UK government has also had a ministerial resignation over the weekend in the wake of last week’s budget, which adds to the uncertainty surrounding the currency. The other mover overnight has been the yuan, with the daily reference rate falling by the most since January. This takes USDCNY away from the lows of the year seen at the end of last week.
We enter what is a shortened week ahead, with many market closed on Friday for the Easter holiday. This could dampen liquidity towards the end of the week. Before then, we have key IFO data in Germany tomorrow, together with the latest inflation reading in the UK on the same day. We also have inflation data for Japan on Thursday, but the picture there has been made clear by the recent moves and commentary from the BoJ, where the policy moves and rhetoric has displayed their frustration with the inability of inflation to move towards the BoJ’s 2% longer-term goal. Equities are starting the week on a cautious footing, mostly lower across the board in Europe, whilst we are also seeing emerging markets, in both currencies and equities, displaying a more cautious tone.