USD

The dollar remained strong against its peers yesterday as data showed US factory activity picked up in early March amid an increase in new orders. However, US manufacturing PMI only increased to 59 in the first half of this month from a final reading of 58.6 in February, when activity took a step back after a cold snap hit large parts of the country. Prices for production materials are also being driven up as factories and their suppliers struggle to find workers, leading to shortages.

These supply chain problems and a rise in input costs are just several factors concerning the US Federal Reserve, and they’re expected to drive inflation above this year’s 2% inflation target.

But Fed Chair Jerome Powell still does not appear to be concerned with the threat of higher inflation and on Tuesday told lawmakers that the anticipated rise over the course of the year will be “neither particularly large nor persistent.”

It was good news for the US service sector too, as the services PMI rose to 60, its highest reading since 2014. Such a high inflation reading is probably down to increasing vaccinations helping the sector reopen, which is leading some market participants to believe that the Fed may tighten fiscal policy.

EUR

Business activity In the eurozone was also surprisingly upbeat this month, but with much of the region heading into a third lockdown the optimism may fade in April. 

Factory output grew at its fastest monthly pace in over 23 years, with Markit Flash PMI showing a growth reading of 52.5 for March. This was the first reading above 50 for six months with any reading over 50 showing growth.

Germany posted a record high of factory orders and the service sector finally expanded after five months of contraction. This was also mirrored in France’s manufacturing which expanded at its fastest pace for three years. The UK also benefited, with anticipation of eased lockdown measures due to a swift vaccine rollout prompting a rush of new orders.

Regarding the ongoing UK/EU vaccine dispute; EU member states are still struggling to contain a third wave and kick-start vaccine programmes slowed by a shortfall in deliveries and Britain has warned the bloc against resorting to “vaccine nationalism”. The new rules set out by the European Commission, which oversees EU trade policy, expand existing measures aimed at ensuring that planned exports by drug makers do not threaten the bloc’s supply. EU officials say export restrictions could also kick in if manufacturers do not respect quarterly vaccine contracts but back-load supplies towards the end of the period.

Ministers will seek to calm tensions over the potential EU ban on vaccine exports to the UK  this week as sources raised the possibility of sharing jab supplies from a Dutch plant. Sources said the UK government was keen to offer support and expertise at the AstraZeneca vaccine production plant in the Netherlands to help scale up production. 

Key announcements

9:30am (EUR) – European Central Bank President Christine Largarde speaks 

9:30am (GBP) – Bank of England Governor Andrew Bailey Speaks

12:00pm (EUR) – Conference for Members of the European Council

12:30pm (USD) – US Final GDP Q/Q