After the drama of Friday, we saw a relatively subdued start to the week in FX markets. The two main events of the day, namely the start of QE in the eurozone and also further tension surrounding Greece look to be more “slow burn” affairs, rather than having an instant impact. Indeed, both have many unresolved issues. For the ECB’s QE program, it is how to deal with buying bonds with negative yields and the resulting losses that risk ending up hitting the central bank’s bottom line. This is most pertinent for Germany, where yields are negative out to the 6 year maturity. We also have to find out to what degree overseas sellers are going to be selling bonds and repatriating cash, with the resultant downward push on the single currency.
We saw a pause in dollar strength yesterday, which allowed sterling and the dollar bloc currencies (CAD, AUD, NZD) to recover the most. This has been given up overnight, with the dollar index making new highs (once again). The Aussie is closest to making new lows for the year, with USDJPY exploring new territory, having pushed above the December highs. There are no major data releases for today, although several UK MPC members are scheduled to speak later in the day. Greece is also not likely to be far from the headlines. Note that the kiwi rate decision will happen overnight tomorrow, where rates are seen holding steady at 3.50%. The kiwi has declined for the past four sessions, but remains above the year’s lows of 0.7177.