US
USD kicked off the week on the back foot against most major currencies following the fallout from Friday’s US Supreme Court’s (SCOTUS) tariff ruling. But with China and Japan financial markets closed for holidays, we wouldn’t read too much into the move.
The SCOTUS tariff ruling reinforces our structural bearish USD view because it threatens to worsen US fiscal credibility and risks fueling trade frictions (check out our Driver for the Week Ahead for more details). Cyclically, we remain neutral USD because the dollar is trading in line with rate differentials. The risk is the structural drags on USD outweigh the neutral cyclical USD backdrop and pull USD lower and further away from rate differentials, like it did in Q2 last year.
There are no policy-relevant US economic data releases today. Fed Governor Christopher Waller speaks on the economic outlook (1:00pm London, 8:00am New York). Waller was one of the two officials (the other was Governor Stephen Miran) who voted for a 25bps cut instead of holding rates unchanged at the January 27-28 FOMC meeting. Waller argued “that a substantial deterioration in the labor market is a significant risk”, and “inflation excluding tariff effects is running close to the FOMC's 2 percent target.”
Fed funds futures continue to fully price in a total of 50bps of easing by year-end. That remains reasonable because US labor demand is weak, upside risks to inflation are fading, and underlying domestic private-sector demand is softening (blue line in chart below).
However, the Fed can afford to be patient before resuming easing. A big fiscal thrust is expected over Q1 reflecting a boost from the One Big Beautiful Bill Act (OBBBA), there’s no layoff spiral underway, and core services less housing PCE inflation has been sticky between 3.2% and 3.4% since March 2025 (red line in chart below).
EUROZONE
EUR/USD is directionless around 1.1800. Germany’s IFO business expectations index improves in February (actual: 90.5, consensus: 90.0, prior: 89.6), indicative of an ongoing recovery in Eurozone economic activity. Bottom line: the ECB is well placed to keep rates on hold at 2.00% for some time, which limits EUR upside.
NEW ZEALAND
NZD/USD is firm, just under 0.6000. New Zealand retail sales volume growth overshot expectations in Q4. Total retail sales volume increased 0.9% q/q (consensus: 0.6%) vs. 1.9% in Q3, driven by spending on discretionary items. Nevertheless, the RBNZ is in no rush to normalize rates because there is still significant spare capacity in the economy. New Zealand’s output gap is estimated to be -1.5% of potential GDP in Q4 2025.
As such, the scope for RBNZ rate hike repricing in favor of NZD is limited. The swaps curve price in a 25bps rate hike to 2.50% by year-end while the RBNZ projects steady rates at 2.25% through late 2026.
ISRAEL
Bank of Israel is expected to deliver a third consecutive 25bps rate cut to 3.75% (2:00pm London, 9:00am New York). However, it’s a close call as 9 of the 16 analysts polled by Bloomberg see a 25bps rate cut, the rest pencil-in no change. The bank has room to ease further as inflation has converged towards the midpoint of the 1-3% target range. Bank researchers estimated the policy rate to average 3.50% in Q4 2026. The swaps market is more aggressive and implies nearly 150bps of cuts in the next twelve months that would see the policy rate bottom at 2.50%.
