BoJ Ends Negative Interest Rates, RBA Stands Pat On Policy

GBP: Holding pattern into Thursday

GBP/EUR continues to trade around the €1.17 handle, under a major resistance level of 0.85 (€1.1764) and should continue to trade tight ranges into Thursday's Bank of England meeting. ING's UK economist James Smith looks for unchanged forward guidance, which could prove a mild Sterling positive and see GBP/EUR retest 0.8500 – especially if the SNB cuts rates on the same day. Against the Japanese Yen, Sterling gained over half a percent as the BoJ lifted interest rates, sending GBP/JPY over 191.00. Cable (GBP/USD) stays on the back foot and closes in on $1.2700 in the early European session on Tuesday. The UK's Office for National Statistics will release Consumer Price Index data on Wednesday.

No Major Data

EUR: ZEW in focus

EUR/USD has softened a little, which seems to be more in line with short-term interest rate differentials. At -135bp, two-year EUR:USD swap rate differentials remain at their widest levels for the year. We have already heard today from the European Central Bank's Luis de Guindos, who said the ECB needs to wait for June before deciding on a rate cut. ING Bank doubt a marginally better German ZEW number today will move the needle much on ECB rate cut expectations or move the Euro and it looks like EUR/USD will struggle to get back above $1.0900 short term.?

Data 10.00: German ZEW Economic Sentiment expected 20.6 from 19.9. E/Zone ZEW Economic Sentiment expected 25.4 from 25.00.

USD: Choppy into tomorrow's FOMC meeting

The Dollar has shown a little strength over the last 24 hours, reconnecting with the higher short-term interest rate story. We notice as well the turnaround in some of investors' favourite FX trades (e.g., long Mexican Peso), which may be profit-taking ahead of tomorrow night's FOMC meeting and Thursday's Banxico meeting, where there is a high chance of the first Banxico cut. The major story this morning, however, is the Bank of Japan ending its eclectic monetary policy mix. Gone are the negative interest rates, yield curve control and purchases of ETFs and Real Estate Investment Trusts. Instead, excess reserves at the BoJ will now be remunerated at 0.10% and the BoJ will target the overnight call rate (its main policy rate now) in a range of 0.0-0.1%. The Yen sold off on the headlines that the BoJ would keep an accommodative policy for a while, but recent headlines are suggesting that further rate hikes may be forthcoming now that the virtuous link between wages and prices has been confirmed.

No Major Data.