Forex - Greenback sinks on euro zone optimism

Investing.com - The U.S. dollar traded lower against almost all of its major counterparts  Wednesday, after the European Central Bank lifted the euro by stating it stands ready to support the economy should further downside arise.

During U.S. afternoon trade, the euro was higher against the U.S. dollar, with EUR/USD up 0.81% at 1.2551..

Speaking at the ECB’s post policy meeting press conference, Draghi said that there were “increased downside risks” facing the European economy, stemming from the debt crisis in the region and its increasing potential to spill over to the wider economy.

Draghi said the ECB would extend its policy of unlimited three-month loans for banks until mid-January 2013, but didn't announce any new three-year lending operations, disappointing hopes that the bank would implement fresh easing measures to help stabilize markets.

However, Draghi also promised to lend central bank support should things deteriorate in the region lending support to the single currency.

Earlier Wednesday, the ECB left euro zone interest rates unchanged at 1%, in a widely expected decision.

The decision came one day after Spain warned that it was having difficulty accessing credit markets, while uncertainty over the outcome of Greek elections on June 17 also weighed.

The greenback remained broadly weaker ahead of Congressional testimony by Fed Chairman Ben Bernanke on the outlook for the U.S. economy on Thursday, amid speculation that the U.S. central bank is mulling new measures to stimulate growth.

The greenback was also lower against the pound, with GBP/USD rising 0.53% to hit 1.5463.

In the U.K., a report showed that construction sector activity continued to expand in May, but the pace of growth moderated.

The Markit/CIPS U.K. construction purchasing managers' index came in at 54.4 in May, down on April's 55.8, but still well above the 50-point mark that separates growth from contraction. Economists had expected the index to decline to 54.2 in May.

Elsewhere, the greenback was higher against the yen, with USD/JPYshedding 0.36% to hit 78.99, but remained lower against the Swiss franc, USD/CHF losing 0.38% to hit 0.9608.

The greenback was weaker against its Canadian, Australian and New Zealand counterparts, with USD/CAD down 0.46% to hit 1.0327,AUD/USD rallying 1.51% to hit 0.9888 and NZD/USD surging 1.34% to hit 0.7663.

Sentiment on the growth linked dollars remained well supported after official data showed that Australian economic growth outstripped expectations in the first quarter, with gross domestic product expanding 1.3%, well above forecasts for a gain of 0.5%.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.30%, to trade at 82.64.

Also Wednesday, revised data showed that euro zone economic growth remained flat in the first quarter, in line with preliminary estimates, but GDP contracted at an annualized rate of 0.1% in the three months to March, compared to a preliminary flat reading.