Markets were meant to start this week second-guessing central banks. Instead, they have a far messier backdrop: a partial US government shutdown driven by a row over immigration enforcement (ICE) funding. The risk of that saw the dollar hit a near-five-year low last week, before recovering slightly.

For the UK, the past month has seen sterling butting its head against the same resistance level against the euro. While it remains at close to a six-month high there is no obvious momentum to see it rise above.

No such worries against the US dollar, where sterling, like most other currencies, has been going from strength to strength – albeit it with some of the froth taken off it in the latter part of last week.

This is an interest rate week for the Bank of England. Investors are hunting for any hint of how the Monetary Policy Committee (MPC) sees pay growth, inflation and the timing of future moves, before Thursday. One report they will be looking at is the one this morning from Incomes Data Research, which found that 44% of bosses expect to be paying pay rises of around 3% this year. Of the rest, half would pay less and half pay more.

The ECB also has a rate decision on Thursday. Friday saw a mass of data from the eurozone, most of it positive. That included GDP in the bloc better than expected at 1.3% year on year and unemployment at just 6.2%, a record low in recent history. Is all that at the expense of inflation? German and Spanish inflation did rise above the target 2%, it’s true, and we’ll get more on that this week from the rest of the eurozone. No-one expects a rate increase from the ECB – but what will they signal?

For the dollar, this week is all about the labour market, with the JOLTS jobs report tomorrow and non-farm payrolls on Friday.

So, the result is a classic early-week set-up: one big political story in the US, a heavy central bank diary in Europe and a market that will be quick to change its mind if the headlines change tone. What we’re watching out for is market reaction to the partial US shutdown, plus Thursday’s Bank of England report and the next run of inflation and labour-market signals on both sides of the Atlantic.

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