host of FOMC members have spoken in the past few days, with almost all of them reiterating the bank’s recent rhetoric – that current policy settings are appropriate and there is no need to rush into raising rates. San Francisco Fed President Mary Daly noted yesterday the need to be ‘patient’, while Chicago Fed President Charles Evans stated he had ‘not seen anything yet to persuade me to change my full support of our accommodative stance’. This echoes similar sentiments from fellow member Bullard on Monday, who insisted that now was not the time to consider changing policy.

With the Federal Reserve very much in a holding pattern, investors are beginning to come around to the idea that a handful of other major central banks could be in a position to tighten policy sooner. The Reserve Bank of New Zealand was the latest G10 central bank to adopt a hawkish stance during its May meeting overnight. While the bank’s main interest rate was kept unchanged, the RBNZ indicated that it expects to start raising rates in the second half of 2022, much sooner than the Fed according to the latest FOMC ‘dot plot’. This sent the New Zealand dollar sharply higher this morning to its strongest position since late-February.

Euro firms above $1.22 level as German sentiment improves

Activity among most other G10 currencies was relatively limited on Tuesday. The euro continued to trade around the 1.225 level, well supported by yesterday morning’s better-than-expected German IFO sentiment data that saw all three of the main indices (business climate, current assessment and expectations) beat consensus. Germany has been one of the EU nations that has struggled the most to shake off the third wave of virus infection in Europe, with still relatively high test positive rates and tough restrictions that have been in place for a number of weeks. Yet, businesses are clearly in an optimistic mood and confident that the economy will rebound in the coming weeks now that around 40% of the country’s population have received at least one vaccine dose.

Meanwhile, the pound traded within a relatively narrow band versus the US dollar on Tuesday. Bank of England MPC member Silvana Tenreyro didn’t add too much on monetary policy during her Q&A session hosted by the University of Oxford, noting that she thought policy would remain accommodative globally for a number of years. Fellow BoE member Vlieghe will be speaking on Thursday, although in the absence of any major market moving comments here we think that the pound will be driven largely by goings on elsewhere during the remainder of the week.