Dollar Stumbles; Sterling Rises to Three Year High

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FEBRUARY 19, 2021

The U.S. dollar is broadly weaker this morning for the second straight day, erasing gains from earlier this week. 

Overview

Much of the blame for dollar weakness can be put on positive data and Covid developments abroad.  In addition, risk sentiment had returned to green today, adding downward pressure on the dollar.   Poor weather across the country is also likely hindering economic activity and vaccine distribution.

However, the outlook for Texas is beginning to improve as the cold-snap thaws.  Energy executives have said they expect the region’s output to ramp up in the coming days. As a result, the price of Brent crude started to fall.  Nevertheless, the Canadian dollar remained elevated.

American PMI data is due out at 9:45 a.m., so we will get an apple to apple comparison of the health of the U.S. economy compared to Japan, the U.K., and the European Union.  Existing home sales will hit the tape at 10 a.m.

President Joe Biden will speak at the G-7 conference later today.


What to Watch Today…

  • PMI at 9:45 a.m.

View Economic Calendar

EUR  

The Euro is in rally mode this morning, taking advantage of a weaker dollar.  The rise in the common currency comes amidst mixed economic data.  The composite Purchasing Managers Index for the entire region stood at 48.1, slightly higher than January but below the 50 growth mark.   There is also a discrepancy between manufacturing and services. Service PMI fell at the fastest pace since November, while manufacturing had the highest output in 4 months.

The Euro is likely seeing strength due to manufacturing gains in Germany, the bloc’s largest economy and a rise in European equities after solid earnings.

GBP  

After stumbling early in the evening, the British pound resumed its rally against the U.S. dollar.  GBP/USD is now at its highest level since 2018.  Overall, the sterling is headed for its six weeks of gains on optimism surrounding the vaccine rollout and pared expectations of negative interest rates.

Not all is rosy, however.  While Markit’s composite Purchasing Managers Index rose to 49.8 in February, beating forecasts of 42.6, the print is still under 50 which is the demarcation line between expansion and contraction.  The gauge of services registered at 49.7 and manufacturing rose to 54.9.  Economists argue that now that Brexit is mostly behind us, the U.K. recovery has a decent upside.

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