ECB plan pushes euro to two-month high against dollar

Euro v US Dollar

Last Updated at 18 Sep 2014, 10:36 ET *Chart shows local time EUR:USD intraday chart
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The euro has strengthened to a two-month high against the US dollar, as the European Central Bank's bond-buying plans continued to please the markets.

The euro rose 0.3% to $1.2673 in early trading on Friday.

It also hit a two-month peak against the Japanese yen and a one-month peak against the Swiss franc.

Yields on Spanish and Italian 10-year bonds fell further, easing implied borrowing costs for the debt-laden countries.

Spanish 10-year bond yields fell to 5.77%, below 6% for the first time since May, while yields on the equivalent Italian bonds fell to 5.19%.

'Driving confidence'

On Thursday, ECB president Mario Draghi unveiled details of a bond-buying plan aimed at easing the eurozone's debt crisis.

Under the plan, the ECB would agree to buy a potentially unlimited amount of bonds of debt-stricken eurozone members on the condition that these countries made a formal request for bailout funds and stuck to the terms of any deal.

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When the president of the Bundesbank openly disagrees with the president of the European Central Bank, you might think that something serious was happening. It is not the way central banks are meant to behave”

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Mr Draghi said the scheme would provide a "fully effective backstop" and that the euro was "irreversible".

Alessandro Giansanti, a strategist at ING, said the plan was, "driving confidence through the market".

"You see the rally extending to longer [bond] maturities, whereas in previous times the rally was concentrated on the short end," he said.

George Saravelos, G10 FX strategist at Deutsche Bank, said: "Draghi has lowered the risk premium towards the euro."

However, Germany's Bundesbank remains opposed to the ECB's bond-buying plan

In a statement, Bundesbank president Jens Weidmann said the bond programme was, "tantamount to financing governments by printing banknotes".

Optimism

European stock markets also rose on Friday morning after their strong rally yesterday, as optimism grew about the prospects for the eurozone economy.

In Paris, the Cac40 index was up more than 1%, while Frankfurt's Dax index rose 0.65% in the first two hours of trading.

Markets were optimistic that US non-farm payroll figures, due later on Friday, would show a rise in employment.

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