Concerns over global economic recovery have sent the markets lower this morning, causing sterling to weaken against the euro and the dollar. A possible vaccine export ban from the EU could also be putting pressure on the pound.
As a third wave of COVID-19 begins to take hold of the continent, the euro has weakened against the dollar. Following France and Germany, the Netherlands has now extended its lockdown due to rising cases.
The dollar, however, is benefitting from its status as a safe-haven currency and is stronger against both the pound and the euro this morning. Later today, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen will testify before Congress for the third time this week.
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GBP: UK inflation drops unexpectedly
The pound has fallen to two-week lows against the euro this morning and six-week lows against the dollar. This is due to a fall in the global markets, which has occurred due to fears that the global economic recovery from the pandemic could be slower than expected.
Concerns about a vaccine export ban from the EU are also weighing on sterling. The Prime Minister is trying to soothe tensions by speaking to EU leaders this week, who will decide whether to go ahead with the ban tomorrow.
Data released this morning shows that UK inflation rate unexpectedly dropped in February. Annual inflation rate eased to 0.4% in February of 2021 from 0.7% in January, below market forecasts of 0.8%. This was mainly due to a fall in prices for clothing and footwear.
EUR: Euro weak due to concerns over third wave
The euro is weaker against the dollar and stronger against the pound this morning. Overall, worries about the third wave of COVID-19 infections in Europe are weighing on the single currency, as well as the slow vaccine rollout.
Today, the European Commission will discuss widening the criteria for possible vaccine export bans. It is expected to now consider vaccination distribution in the country itself and its record of supplying vaccines to the Bloc. This comes due to the slow pace of vaccinations and supply issues.
The European Central Bank will meet for their non-monetary policy meeting later today, which will be followed by the release of PMI data for the services and manufacturing industries.
USD: Dollar stronger due to safe-haven appeal
The dollar has strengthened against a basket of currencies today as worries over the global economic outlook have prompted the markets to look to safe-haven currencies.
The greenback was also supported by comments from Treasury Secretary Janet Yellen, who spoke with Federal Reserve Chair Jerome Powell at a hearing of the House Financial Services Committee. She said that tax hikes could be introduced soon. She said that the economy is still in crisis due to the pandemic and that there is still “a huge problem of joblessness”.
Powell downplayed concerns about inflation and said that “we do expect inflation will move up over the course of the year”.
Today, Yellen and Powell will testify to the Senate Banking Panel.