Manufacturing PMIs for the eurozone sky-rocketed in February while services continue to feel the burden of Covid-19 restrictions. Nonetheless, the US dollar fails to lure market participants and drops lower as the week draws to an end.
On Wednesday, the greenback turned in the crucial 1.20 area and moved higher to trade close to 1.2150. Investors chose to stay true to the „buy the dip” strategy, but at the same time, the upside potential for the main currency pair seems to be limited. This week the pound sterling emerged as an outperformer, with the GBP/USD exchange rate approaching the 1.40 handle. The US economic backdrop remains unclear as the worrisome rise in initial jobless claims and weak inflationary pressures contrast with a sharp bounce of retail sales. For now, there is no reason to doubt the Federal Reserve willingness to stick to the current policy stance for a long time, albeit some investors have already started to bet on the contrary.
The Czech koruna emerges as a clear underperformer. The EUR/CZK popped towards the crucial 26.00 area, yet as long as this level holds, the move should be perceived as a corrective bounce. On the contrary, the recent EUR/PLN decline to 4.48 has little room to run due to the extremely dovish central bank stance, which is not warranted by recent economic data. Industrial production returned to a pre-covid trajectory, and inflation firmed above the National Bank of Poland target once again.