The Euro rallied on Thursday, trading at $1.1338, its highest level in almost three months. The currency jumped up by 2.1% during the week. It held on to significant gains on Friday as well. Furthermore, the Euro traded at 123.620 against the yen, rising to a 13-month high overnight. And it hit a five-month high versus the Swiss franc as well, another safe-haven currency, on Thursday, last standing at 1.0830.
The European Central Bank extended its stimulus by more than what was expected, to boost the economy after the worst recession since World War Two. That decision caused the Euro’s rally.
Riskier currencies also surged forward again after a small drawback. But the U.S. dollar plunged to almost three-month lows against a basket of currencies. It last stood at 96.808. However, the greenback traded at 109.11 against the yen, briefly touching a two-month high of 109.235.
Meanwhile, the Australian dollar soared to $0.6947, hitting a five-month high of $0.6987 on Thursday. The Hong Kong dollar also rose to 7.7500 per U.S. dollar.
How much stimulus did the ECB add?
Investors expected an expansion of the 500 billion euros from the ECB to help struggling economies recover from the pandemic. However, the central bank increased its emergency bond purchase scheme by 600 billion euros to 1.35 trillion. It also extended the scheme to mid-2021.
Furthermore, Germany backed this scheme, which increased investors’ confidence in it, as usual, the country resists any moves towards fiscal integration in the currency bloc.
Zach Pandl, of Goldman Sachs in New York, noted that recent actions by both the EU Commission and the ECB had reduced tail risks around the Euro area’s economic outlook.
He thinks that Europe’s highest challenge is its incomplete fiscal policy architecture. Still, European institutions are making important changes to correct those weaknesses. And the ECB’s bond purchases and the EU recovery fund proposal will go a long way towards rectifying fiscal policy coordination in the Euro’s economic area.
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