Euro Weakens on Trichet’s Comments

ECB President Trichet disappointed markets at yesterday's press conference, only noting that the ECB would "closely monitor" developments, and said risks were 'balanced'. As a result, the Eruo declined sharply against the dollar and across the board. A July rate hike is still expected, but investors are now expressing a greater sense of caution. In hindsight, Trichet stressed twice last month that right now he wasn't seeing second round effects in the Euro-zone, which did knock the Euro, and yesterday's stance should not have come as such a surprise. Nevertheless, the ECB will remain more hawkish relative to the Fed and this may continue to support the Euro in the immediate future.

The Yen climbed back above the key 80.00 level during the Asia session without any obvious assistance from the Ministry of Finance. In fact, Economy Minister Yosano reiterated remarks made yesterday by Finance Minister Noda, describing the latest price action as being largely due to dollar weakness rather than yen strength. This suggests some reluctance to intervene at current levels by the BoJ.