ECB President Mario Draghi made his boldest statement to date and signalled that policy makers are ready to take action to defend Spain and Italy whose borrowing costs have spiralled to unsustainable levels. Speaking at the Global Investment Conference in London he pledged to do whatever was necessary to protect the eurozone from collapse and act to lower unreasonably high government borrowing costs. Following these comments, Spanish and Italian bond yields fell sharply and the euro and most risk related currencies rallied.
The positive progress in the US housing market stuttered as contracts to purchase previously owned homes unexpectedly dropped in June. A further sense of a slowing in the US economy was provided by June’s durable goods orders.
In summary risk appetite turned positive following Draghi’s comments. EUR/USD surged over 2 cents pushing up to $1.2329 before settling at around the $1.2275 level this morning. Sterling also shook off its recent downward trend as GBP/USD gained over 2 cents to hit a high of $1.5723.
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