Currencies: "Markets Showing Little Love on Valentines"

From Marc to Market:

Corrective pressures are gripping the major capital markets today. The Dollar Index's nine-day advancing streak is being threatened by the position adjustment ahead of Yellen's testimony later today.  

Despite record high closes in the main US equity markets yesterday, Asia could not follow suit.  It tried to initially, and recorded new highs since July 2015, but sellers emerged and the MSCI Asia Pacific Index closed marginally lower on the lows of the day.  European bourses are mixed in morning turnover, but the Dow Jones Stoxx 600 may snap a five-day advance.  The US S&P 500's five-day streak is also on the line.  

The US Treasury market is flat, while European benchmark 10-year yields are mostly lower.  Premiums over Germany continue to ease after the recent blowout.  The French 10-year premium over Germany is slipping.  Recall, the spread peaked at the start of last week near 76 bp.  It is now at 68 bp.  This is still elevated, but without the earlier momentum.   At the same time, the US 2-year premium over Germany, which often tracks the euro-dollar exchange rate, is edging above 200 bp for the first time this year.  It peaked at the end of last year near 206 bp, which was the widest since 2000.  

There has been a flurry of economic news.    The report that appears to have had the largest impact was UK inflation.  Headline CPI fell 0.5% as the median anticipated, but this did not lift the year-over-year pace as much as expected.  The 1.8% year-over-year increase just missed the median by 0.1%, though it is still 0.2% higher than December.  The core rate had been expected to tick higher, but it remained unchanged at 1.6%.  

Recall the UK's core CPI rose 1.4% 2015. The headline rate was 0.2% in 2015 and 1.6% last year.   The different performance of the two suggests that most the inflation the UK is experiencing is the result of higher energy (and food prices).  While this force may ease later in the year, the impact of the past decline in sterling is expected to filter through.  

Sterling shed a cent on the news.  It is the only major currency not to be stronger against the dollar today.  In part, what seems to be an exaggerated response to the inflation figures may be a reflection of its recent strong gains on the crosses.   The euro was fraying with a neckline of a topping pattern near GBP0.8470.  Sterling rallied from near JPY138.55 to JPY142.60 over the past week.... 

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Here's two week's of the dollar index via FinViz:
100.79, down 0.16 last.