Dollar on the back foot

The euro gained some ground against the dollar last week following the previous week’s decline, strengthening to just under $1.22, which is still off its high of over $1.23 set in the first week of January. Sterling also strengthened against a generally weaker US currency and is trading at about $1.37 this morning, while it is largely unchanged against the euro at the off today trading at around 88.75p

Stocks in the US set a new all-time high last Thursday before slipping back a little, with European equities also ending lower on Friday. Core bond yields were not much changed through the course of last week, at around 1.10% and -0.50% in the case of US and German 10-year yields respectively

The UK and Euro Area economies both contracted at the start of 2021 judging by the flash composite PMIs for the two published on Friday, both of which were running well below the expansion-contraction threshold of 50 in January led by declining activity in the services sector related to tighter public health restrictions imposed recently

The Fed holds its first monetary policy meeting of 2021 on Tuesday and Wednesday and is likely to leave both interest rates and the current pace of bond purchases ($120bn per month) unchanged

Data due this week includes the latest labour market report in the UK tomorrow (Tuesday) and GDP (Q4 2020) and PCE inflation in the US on Thursday and Friday respectively