2/7/2021 3:26:28 PM GMT
Sometimes officials call for the foreign exchange market to reflect fundamentals as if they can do anything but. As businesses and investors, we are more interested in which fundamentals are driving prices than some academic debate over what fundamental considerations
ought participants emphasize.
Data from Q4 may be dated and may not move anyone's needle, outside some economists and bookkeepers. That includes the eurozone industrial production figures due out at the end of the week. We know that the manufacturing sector is faring better than services and that the December manufacturing PMI was strong at 55.2, its best level since mid-2018. While manufacturing continued to show resilience last month, the PMI eased. Clearly, the risk is that the euro area economy contracts in Q1 21 and by more than the 0.7% seen in Q4 20. Much depends on the contagion and the vaccine rollout, but a contraction around the magnitude seen in Q1 20 (-3.7%) seems reasonable at this juncture.