Dollar Consolidates, Japan Disappoints

London (Feb 18)  he US dollar is little changed against most currencies today as a consolidative tone has emerged after last week's losses. Both Canadian and US markets are on holiday and European news is light.

Sterling initially saw new 4-year highs in Asia, encouraged by a strong Rightmove house price survey (asking prices rose 3.3% in February after 1% in January). However, the push through $1.68 proved premature and a bout of profit-taking was seen, sending sterling a cent from its highs before bids were found near $1.6720.

The euro also showed initial follow through gains in Asia, lifting it to almost $1.3725. The pullback was considerably more shallow than sterling experienced and new bids came in just below $1.3700. The $1.3740 area offers initial resistance. Peripheral bonds markets in Europe are firmer, with Italian 10-year bonds outperforming Spain with a 6 bp decline in the benchmark yield compared with 4 in Spain. Recall that after Italian markets closed last week, Moody's upgraded its outlook to stable from negative (maintaining the Baa2 rating). Italy's 2-year yield, off 3.5 bp today is also leading Spain (-1.5 bp).

Investors continue to take Italy's political drama in stride. The junior coalition partner, led by Alfano, wants a new agreement with Renzi. This may take a few more days. In the meantime, former BOI Governor and Finance Minister Saccomanni is the caretaker prime minister. Note that the electoral reform Renzi and Berlusconi have agreed upon will make it hard for small parties, such as the center-right rump of the PdL led by Alfano, to be directly represented in a new parliament.

(Source:  Seeking Alpha)