Market sentiment received a bit of a boost yesterday when the results of the ECB’s long-awaited second long-term liquidity operation (LTRO) showed strong demand for the cash from European banks. The ECB lent 800 banks €529.5 billion, somewhat above the €450 billion that the market had been anticipating and the €489 billion lent to 523 financial institutions at the central banks first three-year LTRO back in December. Overall, however, the reaction was generally muted with traders instead turning their attention to Federal Reserve Chairman Ben Bernanke’s semi-annual testimony in the afternoon, which indeed proved to be something of a market mover.

The Fed chairman, who was before Congress, acknowledged improvements in the US economy, leading to a scaling back of expectations for more monetary easing. Also taking support from an upward revision to US Q4 GDP data, the dollar moved higher over the afternoon’s trading session, with the euro falling back below the $1.34 level. Dollar/yen, meanwhile broke through the Y81 level, with the USD holding onto much of its gains overnight. Sterling held up well versus the dollar, though this appears to be due to month end flows rather than underlying GBP strength. The tone of Bernanke’s remarks will leave markets closely watching forthcoming US data. Due today is the ISM manufacturing report for February, which is expected to show a modest rise, as well as the latest jobless claims and construction spending reports. Meanwhile, markets will also be watching events in Europe, including the start of a two day summit of EU leaders, and the release of the final CIPS Markit manufacturing PMI report for February.