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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

Reports: CIA finds "Havana Syndrome" unlikely caused by foreign campaign

CIA Director William Burns testifies during a Senate hearing on Capitol Hill last April. Photo: Saul Loeb-Pool/Getty Images

A preliminary CIA report rules out a foreign global campaign as the cause of American and Canadian diplomats affected by a mysterious illness known as "Havana syndrome," per multiple reports.

Why it matters: Some lawmakers had suggested the sometimes debilitating illness was due to directed energy attacks. But CIA officials told the New York Times that most of the 1,000 cases reported to the government could be "explained by environmental causes, undiagnosed medical conditions or stress." This finding has angered some victims, per the NYT.

Jan. 6 panel subpoenas 2 far-right "America First" activists

The House panel investigating the Capitol riot, from left; Reps. Bennie Thompson, Liz Cheney, Adam Kinzinger and Jamie Raskin on Capitol Hill in December. Photo: Drew Angerer/Getty Images

The House select committee investigating the Capitol riot issued subpoenas Wednesday for far-right leaders Nick Fuentes and Patrick Casey, who allegedly encouraged followers to go to D.C. and challenge the 2020 election results.

Why it matters: The action underscores the panel's increasing focus on rallies held ahead of the Capitol attack and how extremists were drawn to former President Trump's baseless claims of widespread voter fraud, per the New York Times.

Democrats fail to change Senate rules to pass voting rights bill

Senate Majority Leader during a news conference in Washington, D.C., on Wednesday. Photo: Alex Wong/Getty Images

Democrats failed Wednesday night to change Senate filibuster rules to pass the voting rights bill, with Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) voting with Republicans.

The big picture: The failed effort came after Senate Republicans blocked the voting rights measure from coming to a final vote earlier Wednesday.