The US Dollar Finds Footing

Bloomberg reported that unnamed officials "familiar with internal discussions" said the ECB sees no need for "drastic action" to offset rising yields. The current tools, verbal intervention, and the flexibility buying program will be sufficient. The most important consideration about such stories is that there is a range of opinions at the ECB. The motive to "reveal" such internal debate to the media must be questioned. It is not just to share information. In this case, it seems from the hawkish camp does not want to take fresh action. It is an example of affirmation through negation. It means that there is a discussion taking place, and some want the ECB to step up its efforts. Note that one official said that the central bank would react against "unwarranted increases earlier this week." Next week's ECB report (before the ECB meeting) will shed more light on whether the ECB did, in fact, step up its buying in the face of the drama at the end of last week.  

The euro staged an impressive recovery yesterday after briefly slipping below $1.20 for the first time in nearly a month. It reinforces the sense that it is the bottom end of the range. It stalled in front of $1.2095, but the gains were extended to almost $1.2115 in late Asia/early European turnover. A break of $1.2080 would confirm a consolidative tone and warn of downside risks toward $1.2040. Sterling is holding up better. It recovered a cent after slipping to near a two-week low yesterday around $1.3860 and briefly pushed above $1.40 at the end of a quiet Asia session. Support is now seen near $1.3940.  


Today's US economic data is non-government sources. The ADP private-sector job estimate (Bloomberg median 200k after 174k in January) may be the most important of today's releases. However, its month-to-month predictive value of the national report is less than ideal. The current estimate (Bloomberg median) has crept up as forecasts are revised to now stand at 195k after the disappointing 49k increase in January. The final PMI readings and the ISM services will be reported as well. The high-frequency reports often have a high noise-to-signal ratio, and regardless of today's reports, a strong Q1 GDP is widely expected. That said, yesterday's auto sales report, apparently dampened by the poor weather, came in at 15.67 mln-unit seasonally-adjusted annual pace. This was below expectations and compares with 16. 83 mln vehicles sold last February. Late in the session, the Beige Book will be released as part of the preparation for the FOMC meeting on March 17. 

Canada's Q4 GDP reported yesterday at 9.6% at an annualized pace exceeded expectations for a 7.3% increase (Bloomberg median). It leaves the economy about 3% smaller than at the end of 2019. It is expected to regain that by the middle of the year. Today's calendar features only January building permits, which are expected to have recovered from the weakness at the end of last year. Houses prices in the UK, Australia, New Zealand, and Canada show strong upside pressure that is gradually moving onto the central banks' radar screens. House prices are rising in the US, and the latest Case-Shiller report (February 23) showed that house prices rose by almost 10.4% year-over-year in December, the most in nearly seven years. Fed officials have not spoken much about it.  

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Read more by Marc on his site Marc to Market.

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