Eurozone PMI indices for February had a mixed impact on market sentiment, composite indices (manufacturing + services) were higher than expected, both in the EU and the key economies of the block, however manufacturing and services sectors separately showed different dynamics – services’ activity rose while in manufacturing sector activity declined compared to the previous month. The index of economic sentiment in Germany and the Eurozone from the ZEW agency also topped expectations, but the European currency reacted to the data rather restrained, ceding ground to the dollar. 

Yesterday was quiet on the market due to holidays in the US, but today activity should start to creep up. President Joe Biden’s visit to Kyiv on Monday and the promise of more support for Ukraine have no clear implications for the markets in the near future, but likely confirm the already established perception that the conflict in Ukraine will drag on. There is still potential for serious repercussions, especially in neighboring Europe, but the asset premium for long-term risks is shrinking now as the main conduit of the conflict on the market, energy prices, has lost its destabilizing impact. 

The dollar rally may also begin to falter this week. The main reason to expect this is that reports and events related to the Fed as a whole are factored into asset prices, and more significant information is needed for further hawkish revaluation of rate expectations. There seems to be some hope for the Fed's minutes, but it's reasonable to expect that officials couldn't predict the surprises in NFP, inflation, and retail sales, so a potential hawkish tone is likely to fall short of fundamentals. However, external factors, such as news from Ukraine or China or a general deterioration in the attitude towards risk, can push the dollar higher, which gradually emerges from the dynamics of risk assets. US indices closed in the red yesterday; futures also trade lower today. 

Volatility in global risk appetite may delay the positive impact of generally good PMIs on EUR/USD, but the risk balance is tilted up for EUR/USD in the coming days and a return to the 1.075-1.080 range appears possible. 

The UK PMIs was released this morning, and just like in the EU, the service sector was the main driver, industry was lagging behind. The chances for the pound to consistently strengthen against the euro are slim as the market is broadly expecting the BoE to make only one final 25 basis point rise in March, while some investors expect further tightening thereafter. At this stage, the EUR/GBP pair may remain in a range or gradually rise.