Dollar Wakes as Big Ben Rings

4:30 am UK Feb CPI y/y (exp 2.0%, prev 1.9%) 8:30 am CAN Feb Leading Indicators (exp 0.5%, prev 0.5%) 8:30 am CAN Jan Retail Sales (exp 0.9%, prev 0.3%) CAN Jan Retail Sales –ex autos (exp 1.0%, prev 0.4%) 8:30 am US Feb PPI (exp -0.2%, prev 0.3%) 8:30 am US Feb Core PPI (exp 0.1%, prev 0.4%)

Fed Chairman Bernanke’s speech this evening was not one from which the market was ready to glean the Chairman’s assessment on the state of the US economy as it was scheduled 1 week before the FOMC decision.

Instead, the Fed Chairman stuck to explaining the cause of the generally low levels of long-term interest rates and of the flat and recently inverted shape of the yield curve.

Bernanke sounded off the oft-mentioned reasons for low long term rates, namely: stable inflation; pension funds’ demand for long-term securities in light of demographic changes; increased demand for US Treasuries relative to the issuance of new supply and; to a lesser extent foreign accumulation of dollar reserves.

He also said rising demand for long term securities was due to falling risk premium, which is more likely to be the result of falling interest rate risk than falling inflation risk.

Bernanke challenged the notion that inverted yield curves signalled a significant economic slowing as was in the past episodes because current interest rates “are relatively low by historical standards”.



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