The decision of various EU member states to suspend AstraZeneca (AZN) vaccinations is another headwind for the euro in the near term.

USD: Calm before the FOMC tomorrow

The decision of various EU countries to halt AstraZeneca vaccinations had a limited impact on broader risk sentiment, as this (a) delays rather than derails the expected eurozone recovery, while (b) strong US recovery prospects dominate and are pushing US equities further up. With all eyes on the FOMC meeting tomorrow, sentiment should remain neutral today. On the US data front, both US February retail sales and industrial production should be softer vs the January reading, the former affected by a high January base due to the $600 Federal stimulus payment for people earning less than $75k and both being affected by bad weather (the winter storms). Impact on USD should be limited today (UUP).

EUR: Dearth of good news, but EUR already fairly cheap

From an economic point of view, the decision of various EU member states to suspend AstraZeneca vaccinations is another headwind to the very near-term EUR prospects as it further underscores the divide between the US and eurozone's near-term economic recovery prospects. Still, with EUR/USD trading in fairly undervalued territory based on our short-term financial fair value model (around 2% undervalued) and the EUR/USD speculative positioning already adjusting meaningfully, recent events suggest limited near-term upside rather than another dip in EUR/USD lower. Data-wise, the German March ZEW index is set to rise today but, as per above, this should prevent EUR/USD from declining rather than sending it higher (FXE).

GBP: The narrative of fast vaccination unchanged

Sterling largely shrugged off the news on the EU commencing legal action against the UK's recent moves to unilaterally override parts of the Northern Ireland protocol. As any imminent decision seems unlikely and the process may take time, any negative impact on GBP should be limited. Equally, with many EU countries suspending AstraZeneca vaccinations, yet no such signals coming from the UK (with the UK already doing more than double the EU’s AstraZeneca volumes yet not detecting material problems) the narrative of GBP continuing to reap the benefits of the fast vaccination program remains intact and should keep the EUR/GBP direction skewed to lower levels (FXB).

SEK: Short-lived weakness

Sweden's krona has been weighed down by the rather disappointing February CPI print yesterday. We expect the negative impact on the currency to be short-lived (even a good CPI number would not translate into a more hawkish Riksbank) and the EUR/SEK should continue grinding slowly lower in coming weeks, largely benefiting from the stabilising global risk environment (FXS).