The US dollar continues to nibble away at the pound and the euro. There was nothing dramatic about it on Wednesday; indeed the resurgent Norwegian krone had a much better day. But in the last week the USD has taken 1.9% off the GBP and 1.2% off the EUR.
Compared with a month ago the USD has added an average of 3% against the major currencies. Canada has done almost as well, strengthening by 2.8%. By and large, the US economic data have been at least as good as the numbers from the euro area but not in every case. Provisional purchasing managers’ indices from the manufacturing sector in Germany and the Eurozone came in at 66.6 and 62.4. The equivalent US reading was 59. It is hard to avoid the suspicion that investors are keeping the euro at arm’s length because they fear the EU will be left behind economically as a result of vaccine disarray.
The inconvenient fly in that ointment with that theory is sterling. In the short term it has underperformed the euro despite Britain continuing to administer vaccinations at a fast pace. Perhaps investors are concerned about the threat of an EU-UK vaccine war, or maybe they simply have one eye on the potential economic success of Brexit.
The most unexpected development on Wednesday was German Chancellor Angela Merkel’s U-turn on the lockdown she had planned for Easter. After considerable discussion with regional leaders, the plan was dismissed as impracticable and Fr Merkel asked for the country’s forgiveness.
Other leaders in action yesterday were US Federal Reserve Chairman Jerome Powell, US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde. Mr Powell and Ms Yellen told the Senate Banking Committee pretty much what they had told the House Financial Affairs Committee the previous day. Ms Lagarde drew attention to the possible effects of climate change on monetary policy.
As well as the provisional PMIs, Wednesday’s ecostats included US durable goods orders and Eurozone consumer confidence. Orders unexpectedly fell 1.1% in February while confidence improved by four points to -10.8, a post-pandemic high.
US GDP, UK retail sales
Given the market’s current obsession with vaccinations and lockdowns, the economic statistics today and on Friday seem scarcely relevant to exchange rates. Nevertheless, for good order’s sake, the theoretically important numbers today relate to US growth and jobs; tomorrow’s are for UK retail sales and EU business confidence.
This morning the Swiss National Bank is expected to keep monetary policy unchanged, as is the South African Reserve Bank later on. At lunchtime, the US reports on revised fourth quarter gross domestic product and weekly jobless claims. A handful of central bankers have speaking engagements, none of which carry great promise.
Friday begins with UK retail sales and moves on to German and Italian business confidence. The US personal income and spending numbers appear at lunchtime, followed by the Michigan index of US consumer sentiment.