ith virus cases rising and lockdowns either being extended or reintroduced in most of Europe’s major nations, investors are growing increasingly pessimistic about the bloc’s near-term outlook. The US, on the other hand, continues to administer vaccinations at a rapid pace and has already unwound virus restrictions to a meaningful extent. This continues to be evident in a general divergence in economic data between the US and Euro Area and has sent the euro tumbling back below $1.18 for the first time since mid-November.

The dollar actually rallied against every other G10 currency last week and almost every emerging market one. Among the worst performers in the EM universe were the Turkish lira, which has been pressured lower by the removal of the head of the country’s central bank, and the Brazilian real, which is approaching fresh lows amid a worrisome increase in virus deaths in Brazil.

Investors will have a number of macroeconomic data releases to digest this week, notably Eurozone inflation (Wednesday), the latest business activity PMIs (Thursday) and Friday’s US nonfarm payrolls report. We expect another strong headline number in the latter, which is likely to be the key market moving event in the foreign exchange market this week.

GBP

The pound continued to outperform most of its major peers last week as investors remain encouraged by the UK’s so far impressive vaccine rollout. The UK government has announced that vaccine supply is set to drop in April, although we’ve so far seen no evidence of such a slowdown with daily vaccinations rising to new highs last week. News that the Moderna jab looks likely to be made available in the UK in the second half of next month has provided some additional encouragement. More than 30 million people in Britain have now received at least one vaccine dose and there has, as of yet, been no signs that the reopening of schools has led to either an increase in new cases or deaths caused by the virus.

Updated Q4 GDP could receive some attention on Wednesday, although this is expected to remain unrevised. We expect sterling to once again be driven largely by the latest vaccination and covid numbers.

EUR

A host of nations in the EU have reinforced tougher lockdown measures in the past few days as infection levels tick upwards and the bloc’s vaccine rollout stalls. The big concern among experts has been the increased dominance of the faster spreading strain of the virus, which is causing cases to increase at an exponential rate. This has put the euro on course for its worst monthly performance versus the US dollar since mid-2019. While we remain bullish on the common currency in the longer-term, the growing downside risks to the European outlook suggests that further losses in the euro could be on the cards in the near-term before this uptrend begins to materialise.

Inflation data on Wednesday and the revised manufacturing PMI for March on Thursday could shift the euro this week. The preliminary estimate of the latter jumped to its highest ever level last week (62.4), although the overall outlook for Q1 remains grim and the entering into a double-dip recessions continues to appear inevitable.

USD

US macroeconomic data out last week mostly fell short of expectations, although continued to show the country’s economy far outpacing most of its major peers, particularly the Euro Area. Fourth quarter GDP data was revised higher, with initial jobless claims falling to their lowest level over the entire pandemic period. Personal spending dropped sharply, although this was overlooked by investors given the sharp increase in the measure in January.

Friday’s nonfarm payrolls report will be the main event in the US this week. With virus restriction measures continuing to be unwound across the US by the week, we think that another strong month of job creation in March is on the cards. Economists’ are eyeing a sharp increase in net job creation to more than 600,000 and a drop in the unemployment rate to just 6%, which would be its lowest level recorded since the pandemic began in March.