The euro rocketed to a 17-day high against the dollar on Friday as German government bond yields surged on the back of investors thinking the European Central Bank was done stimulating the ailing euro zone economy after cutting rates on Thursday.
The central bank cut its deposit interest rate by 10 basis points to a record low of minus 0.5% and said it would restart bond purchases at a rate of 20 billion euros a month from Nov. 1 for an indefinite time.
The revived bond purchases exceeded many expectations because they are set to run until “shortly before” the ECB raises interest rates. Given that markets do not expect rates to rise for nearly a decade, such a formulation suggests that purchases could go on for years, possibly through most of Christine Lagarde’s term leading the bank.
The euro was up 0.3% at $1.1096 after jumping earlier to $1.11095, its highest since Aug. 27. The 10-year German Bund yield surged to a six-week high of negative 0.48%.
The day before, the common currency briefly went below $1.10. Deutsche Bank had projected the euro would fall below $1.10 and now that it had, the German bank said it was now neutral on the common currency.
“We think the risks on the euro are now turning more two-sided,” said George Saravelos, Deutsche’s currency strategist, in a note, adding he was “not willing to turn bullish just yet.”
“We believe EUR/USD will remain stuck around 1.10,” he said.
The dollar rose overnight against the Japanese yen – after Donald Trump said he would not rule out an interim trade pact with China – then gave back some of those gains.
Source: CNBC
