The Euro and the British Pound fell as much as 0.4 percent apiece against the US Dollar in overnight trade as the greenback enjoyed a broad-based advance against the majors (see below). We expect continued EURUSD gains while GBPUSD is vulnerable to a pullback.

The US Dollar outperformed in overnight trade, rising against all of its major counterparts as US-based assets enjoyed a broad-based boost following news that after nearly a decade of trying, the United States finally managed to kill al-Qaeda leader and 9/11 mastermind Osama bin Laden(see more below). The safety-linked Swiss Franc and Japanese Yen bore the brunt of the greenback's advance amid swelling optimism surrounding the announcement.

The New Zealand Dollar slumped as much as 0.7 percent after the ANZ Commodity Price gauge showed global market rates for the island nation's raw materials exports added a meager 1.6 percent in April, amounting to the smallest increase in eight months. Selling pressure was compounded after New Zealand's Treasury said first-quarter economic growth is likely to be “flat to slightly negative”. Both developments weighed on RBNZ rate hike expectations, sinking the currency in the process.

The economic calendar is fairly tame in European hours, with the final revisions of April's German and Euro Zone Manufacturing PMI readings set to confirm initial estimates. Switzerland's SVME-PMI result may draw attention after its central bank offered unexpectedly hawkish commentary last week, with a pick-up in manufacturing growth poised to bolster rate hike bets.

On balance, while the initial burst of optimism is psychologically understandable, the announcement's lingering implications remain uncertain. Indeed, the markets' initial reaction may give way to worries that the US' bold offensive against bin Laden may spur reprisals and unleash an increase in terrorist activity, a development that is likely to turn current price action on its head.

All told, the most plausible outcome seems to favor a resumption of established trends after the euphoria surrounding the announcement of bin Laden's death subsides. Specifically, traders got a definitive window of opportunity to borrow in US Dollars cheaply to finance bets on higher-yielding assets after the Federal Reserve cemented its intention to end QE2 in June last week. This suggests that after the dust settles, the greenback will once again find itself on the defensive against its higher-yielding counterparts. To be sure, the days of the US unit's viability as funding currency are numbered and traders will surely not pass up an opportunity to capitalize, especially considering that there will be amble time to price in the long-term implications of today's successful anti-terror operation as further details emerge.