What a Week: The Bull Still Grazes

The ECB said it is targeting inflation rates "close to 2%" over the medium term vs. "below 2%" in the past.

That subtle shift "gives the ECB added flexibility in tackling downside price risks by securing the ability to ease monetary policy even with inflation at 2.0%," observed Ashraf Laidi, chief currency analyst at MG Financial Group. Still, traders seemed to focus mainly on prospects for a Fed rate cut this summer, not one from the ECB.

Earlier in the week, Snow had said: "It has been the U.S. administration's policy for many years to support a strong dollar. But [it's also policy] to recognize the dollar's value is best set in an open, competitive currency market with a minimum of interventions."

Currency traders took that comment as Snow's way of discouraging the Bank of Japan, most notably, from intervening in currency trading to support the dollar. Fittingly, the dollar fell 1.5% vs. the yen this week, trading at 117.25 yen late Friday after hitting a 10-month low of 116.06 yen on Wednesday. For the week, the Dollar Index fell 1.85% to 94.97.

The dollar's weakness served as a somewhat perplexing backdrop to the rampaging strength in Treasuries, which occurred despite the government's record $58 billion refunding auction of three-, five- and 10-year notes. For the week, the yield on the benchmark 10-year note fell 23 basis points, ending Friday at 3.69%.

This column examined some possible noneconomic factors contributing to the near multidecade-low 10-year Treasury yields, including speculation the Fed is buying long-dated maturities to combat deflationary pressures. Such explanations should allay concerns that the bond market is suggesting the stock market is "wrong" about pricing in an economic recovery. Still, Treasury yields would be higher if fixed-income participants saw the kind of robust growth some equity participants are anticipating. (RealMoney.com contributor Howard Simons offered to examine whether stocks or bonds have historically been more prescient in forecasting economic trends; I'll report on the results.)

Tune-In TaskMaster

I'll be on WABC radio's Batchelor & Alexander show Friday evening, around 12:35 a.m. EDT. (OK, that's really Saturday morning for East Coasters). The show is nationally syndicated, so check wabcradio.com for local listings or Webcast options.

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