The Euro climbed to its highest level in four months against the US Dollar on Thursday, driven by a spike in European bond yields following Germany’s proposal for a €500 billion infrastructure fund and adjustments to borrowing limits.
Meanwhile, the US Dollar remained near a four-month low against a basket of major currencies after President Donald Trump’s administration granted Canada and Mexico a one-month extension on auto import tariffs.
The British Pound and Australian Dollar gained ground, with the Pound hitting a four-month high. The Aussie climbed to a one-week peak, further supported by strong domestic economic growth and promises of additional stimulus from key trading partner China. Meanwhile, the Yuan retreated after briefly reaching a four-month high, Reuters reports.
“The moves in European markets were remarkable … as the German government, after long last, exercises its ample balance sheet,” stated Kyle Rodda, senior financial markets analyst at Capital.com.
“US trade policy remains the biggest uncertainty for the markets,” but the exemption for auto tariffs “supported hopes that rational heads prevail in the White House, and that even if trade relations don’t improve, at least they won’t get any worse,” Rodda said.
Germany’s bond yields surged as investors absorbed the extra borrowing needed to support the debt overhaul, with 30-year yields rising by as much as 25 basis points at one point.
The Euro gained 0.3%, reaching $1.0820 on Thursday, marking its highest level since 7th November.
The shared currency has risen by 4.3% this week, positioning it for its best week since March 2009. However, attention will be on the European Central Bank’s upcoming policy decision later in the day. While a quarter-point rate cut is widely anticipated, the focus will be on the extent and speed of further easing measures.
Sterling climbed to as high as $1.2913, reaching its highest level since 11th November.
“The upshot is that a chunk of US exceptionalism has faded in the rates space,” said DBS analysts.
“We suspect that the divergence in fiscal stances between the US – perceived austerity – and Eurozone – aggressive spending – would be in play for the medium term.”
In addition, “we cannot rule out profit-taking after three days of aggressive USD selling,” the analysts added.
Furthermore, the Dollar index, measuring the greenback against six major peers, fell to 104.09, marking its lowest level since 6th November.