Morning Currency Wrap for Wednesday February 9, 2011

ECB Wants A Dove Not A Hawk? - The Euro has been able to recapture all of its initial losses on news that Bundesbank head Axel Weber may not be a candidate to replace Jean-Claude Trichet as President of the European Central Bank. Apparently, Weber mentioned in a private meeting on Tuesday that he may not want another term as Bundesbank president after his term expires in April 2012. Thus, European officials have interpreted the comment, along with other private conversations in which Mr. Weber has cast doubt on his future as a central banker, as a sign that he may not seek the ECB presidency. Weber, who had been considered a front-runner to succeed Trichet when his term expires in October, is regarded as a hawk on inflation but often finds himself in the minority. I guess they are looking for a dove like Bernanke, OMG. Elsewhere, the NZD was down across the board after Finance Minister Bill English said it was “possible” the economy slipped into recession in the second half of last year. The economy may have contracted in the fourth quarter of 2010, entering its second recession in two years, he said. Nothing is official yet but it sounds like English is trying to talk down the NZD or at least stop it from rising too much. In Japan, the USD was up against the Yen as yield differentials have moved in the USD's favor, especially against the Yen. The media will tell you that signs of a broadening US recovery and some hawkish commentary from Fed officials have contributed to higher US bond yields, but the truth is that the bond vigilantes have inflation on their radar and have sold off  US bonds causing yields to rise. The market will focus on Chairman Ben Bernanke's testimony at 1500 GMT to the House Budget Committee and tomorrow's Bank of England policy meeting for direction. In Canada, the CAD was little changed from yesterday's close after loosing about a cent against the USD in yesterday's trading action on news that as oil prices were undermined by news that Suez Canal operations were unaffected by strikes, calming concerns about Mideast supplies.