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Illustration: Sarah Grillo/Axios

Increasing lockdowns, a mutating virus and a botched vaccine rollout have the eurozone headed for a double-dip recession, weighing heavily on its currency and pushing the dollar higher.

Why it matters: The weak dollar (down 10% from its 2020 highs) has been a linchpin for some of the biggest consensus trades this year — strong commodities, skyrocketing U.S. equity prices and emerging market stocks and bonds.

  • A weakening euro — the largest component in the value of the dollar index — means a stronger dollar, which could halt or reverse those trades.
  • The economic slowdown could force the hand of the European Central Bank to further lower interest rates below -0.5% or deliver even more extreme monetary policy easing, further weighing on the euro.

The big picture: The ongoing crisis in the eurozone — where GDP in the fourth quarter was -0.7% and economists are predicting another quarter of negative growth for Q1 this year — is running in direct opposition to the bounceback seen in the U.S., which boasted 4% growth in Q4.

  • Bank of America Securities notes that the euro has been one of the "greatest underperformers" among the world's major currencies.
  • Kathy Lien, managing director of FX strategy for BK Asset Management, pointed out in a note to clients that the euro extended its fall against the dollar despite better than expected economic data earlier this week, "which goes to show that once sentiment shifts, it can have a lasting impact on a currency." 

By the numbers: The euro has fallen for three straight days and touched its lowest against the dollar since Nov. 30 on Wednesday. The continental currency also hit its weakest against the British pound in nine months.

Between the lines: While growth has been nonexistent, signs of inflation have been popping up, pushing government bond yields higher.

  • Most recently, eurozone consumer price inflation hit an 11-month high of 0.9% in January, up from -0.3% in December, according to Eurostat. That was the biggest inflation jump in more than a decade.
  • Core CPI rose by 1.4% on the year.
Charted: The U.S.-Europe PMI split
Data: Investing.com; Chart: Michelle McGhee/Axios

Eurozone PMIs were revised higher in the month of January but remained below 50 for a composite of the manufacturing and services sectors, with services as the biggest drag, having fallen for five months straight.

  • Overall private sector output declined for the third consecutive month and at an accelerated rate, IHS Markit reported.
  • Ireland's composite PMI fell to its lowest level in eight months.
  • Germany's fell to its lowest in seven months.
  • Italy fell to its lowest in three months and Spain and France both fell to their lowest in two months.

The other side: U.S. services and manufacturing both jumped in January, with the services sector reporting especially strong growth.

  • "The rate of growth was the second-sharpest in almost six years, with firms linking the upturn to stronger client demand and an increase in new business," IHS Markit noted in a release.
  • "January data indicated a strong rise in new orders."

What to watch: IHS Markit also highlighted a notable pick up in U.S. businesses' costs — another sign of creeping inflation.

  • "[C]ost burdens soared once again, with the rate of input price inflation the fastest since the survey began in 2009. Firms largely passed on higher costs to clients through a marked rise in charges."

Go deeper

Republican Sen. Sasse slams Nebraska GOP for "weird worship" of Trump after state party rebuke

Sen. Ben Sasse, (R-Neb.) Photo: Andrew Harnik - Pool/Getty Images

The Nebraska Republican Party on Saturday formally "rebuked" Sen. Ben Sasse (R-Neb.) for his vote to impeach former President Trump earlier this year, though it stopped short of a formal censure, CNN reports.

Why it matters: Sasse is the latest among a slate of Republicans who have faced some sort of punishment from their state party apparatus after voting to impeach the former president. The senator responded statement Saturday, per the Omaha World-Herald, saying "most Nebraskans don't think politics should be about the weird worship of one dude."

Cuomo barraged by fellow Dems after second harassment accusation

New York Gov. Andrew Cuomo faced a barrage of criticism from fellow Democrats after The New York Times reported that the second former aide in four days had accused him of sexual harassment.

Why it matters: Cuomo had faced a revolt from legislators for his handling of nursing-home deaths from COVID. Now, the scandal is acutely personal, with obviously grave political risk.

2 hours ago - Health

Fauci: Children "very likely" to get COVID vaccine at start of 2022

NIAID Director Anthony Fauci. Photo: Win McNamee/Getty Images)

Children under age 12 will "very likely" be able to get vaccinated for coronavirus at the "earliest the end of the year, and very likely the first quarter of 2022," NIAID Director Anthony Fauci told "Meet the Press" Sunday.

Why it matters: Children generally aren't at risk of serious coronavirus infections, but vaccinating them will be key to protecting the adults around them and, eventually, reaching herd immunity, writes Axios' Caitlin Owens.