Riskier currencies surged forward while U.S. dollar fell

Riskier currencies rallied along with the Euro at the end of the last week, after a small drawback during the previous days. The Australian dollar jumped to $0.6947, striking a five-month high of $0.6987 on Thursday. The Hong Kong dollar also increased to 7.7500 per U.S. dollar.

The greenback traded at 109.11 against the yen, briefly reaching a two-month high of 109.235. On the other hand, the U.S. dollar plummeted down to almost three-month lows against a basket of currencies. It last stood at 96.808.

The Euro skyrocketed on Friday, and it rallied on Thursday as well, trading at $1.1338. All in all, the currency jumped up by 2.1% last week.

Against the yen, the Euro traded at 123.620, rising to a 13-month high overnight. It also surged forward to a five-month high against the Swiss franc on Thursday, last standing at 1.0830.

What caused the Euro’s rally?

The European Central Bank decided to extend its stimulus by more than what was expected to help struggling economies recover from the pandemic. While investors expected the expansion of the 500 billion euros from the ECB, they were pleasantly surprised that the amount much surpassed that number.

The central bank extended its emergency bond purchase scheme by 600 billion euros to 1.35 trillion, along with extending the scheme to mid-2021.

Recent actions by the EU Commission and the ECB had reduced tail risks around the Euro area’s economic outlook, as stated by Zach Pandl of Goldman Sachs in New York. According to him, Europe’s highest challenge is its incomplete fiscal policy architecture.

However, European institutions are making critical changes to correct those weaknesses. Pandl is positive that the ECB’s bond purchases and the EU recovery fund proposal will help in greatly rectifying fiscal policy coordination in the Euro’s economic area.

Investors’ felt even more confident about the outcome after Germany backed this scheme. Usually, the country resists any moves towards fiscal integration in the currency bloc.