In US trade, the euro overcame the disappointment of the ECB leaving rates on hold, joining in the ‘risk on’ rally that washed over global markets last night.
The ECB kept its benchmark interest rate unchanged at 1%, with Draghi rationalising the 'no rate cut' decision by saying the ECB's base case scenario did not change in the wake of strong data prints in Q1 and much softer data more recently, although he did acknowledge the increased downside risks. He also asserted that many of the eurozone’s problems have nothing to do with monetary policy, pointing out it was necessary for Europe to continue down the path of fiscal consolidation and structural reform to regain competitiveness. Elsewhere, German data was again on the weak side, with April industrial production falling 2.2% versus the -1.0% consensus. This data follows yesterday's softer-than-expected services PMI and factory orders prints, providing further signs that Germany is not immune from the slowdown across the eurozone. However, all this mattered little, as traders got swept up in the move into riskier assets.
While many are suggesting last night was nothing more than an ‘oversold bounce’ and a short covering exercise, it was enough to push the euro back above the 1.25 level. Tonight’s price action promises to be just as enthralling, with Ben Bernanke testifying before congress and yet another Spanish bond auction amidst rising yields and an escalation in Spain’s debt crisis. Having ended yesterday’s Australian session around the 1.2495 level, the euro pushed higher to end US trade at 1.2582. Upon reopening for the Asian session, the euro is essentially flat.