Euro Hits Four-Month High as European Bond Yields Surge

The euro extended its rally on Thursday, reaching a four-month high against the U.S. dollar. This surge was fueled by a sharp rise in European bond yields following Germany’s announcement of a proposed €500 billion ($539.85 billion) infrastructure fund and an overhaul of its borrowing limits.

Meanwhile, the U.S. dollar continued to struggle, hovering near a four-month low against a basket of major currencies. This weakness came as President Donald Trump’s administration granted a one-month reprieve on auto import tariffs for Canada and Mexico—highlighting the ongoing unpredictability of U.S. trade policy.

The pound and the Australian dollar also capitalized on the greenback’s decline. Sterling hit a four-month high, while the Aussie reached a one-week peak, supported by strong domestic economic growth and additional stimulus measures from China, its largest trading partner. Offshore, the Chinese yuan remained near a nine-day high.

Kyle Rodda, a senior financial markets analyst at Capital.com, noted the significance of the developments in Europe. “The moves in European markets were remarkable as the German government, at long last, exercises its ample balance sheet,” he said.

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He also pointed out that “U.S. trade policy remains the biggest uncertainty for markets,” but the temporary exemption on auto tariffs has raised hopes that cooler heads may prevail in Washington. “Even if trade relations don’t improve, at least they won’t get any worse,” Rodda added.

German bond yields surged in response to expectations of increased borrowing, with 30-year yields jumping as much as 25 basis points.

The euro traded at $1.0792 in the Asian morning, having briefly touched $1.0803—its highest level since November 8. The currency is up nearly 4% this week, marking its strongest weekly performance since March 2020.

However, all eyes are now on the European Central Bank’s policy decision later in the day. While a quarter-point rate cut is widely anticipated, investors will be closely watching for guidance on the pace and scope of future easing measures.

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Sterling also made gains, climbing to $1.2906—its highest level since November 11. The U.S. dollar index remained largely unchanged at 104.31 after dipping to 104.25 overnight, its lowest since November 8.

The greenback did, however, gain 0.2% against the safe-haven yen, trading at 149.17 yen, and edged up 0.1% to 7.2438 yuan offshore, despite a 0.9% decline over the previous two sessions.

The Australian dollar continued its upward momentum, rising 0.1% to $0.6345—the highest level since February 26. Meanwhile, China’s annual parliamentary meeting, which began on Wednesday, signaled greater efforts to boost consumer spending to support economic growth amid heightened trade tensions with the U.S.

At the same time, the White House softened its stance on trade by exempting automakers from the newly announced 25% tariffs on Canada and Mexico for one month—provided they adhere to the terms of an existing free-trade agreement.

The U.S. dollar eased 0.1% to C$1.4327, its lowest since February 27, and declined by the same margin to 20.3933 Mexican pesos.