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Euro Jumps as ECB Expands Bond-Buying Program

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06/04/2020 | 11:22am EDT

By Caitlin Ostroff

The euro climbed near a three-month high against the dollar and yields on southern European debt fell as investors cheered the European Central Bank's expansion of its bond-purchase program.

The euro rose 0.7% to $1.1306 after the ECB said Thursday it would increase the size of its Pandemic Emergency Purchase Program by EUR600 billion ($673 billion) to buy up to EUR1.35 trillion ($1.52 trillion) of eurozone government and corporate debt through June 2021, putting its stimulus effort in league with the Federal Reserve's. ECB President Christine Lagarde said members voted unanimously to expand the program.

Yields on southern European debt declined, with the yield on the 10-year Italian government bond falling to 1.399%, from 1.599% before the announcement -- bringing it to its lowest since late March, according to Tradeweb. The yield on the 10-year Greek government bond also fell to 1.400%, from 1.526% Wednesday. Bond yields drop as prices rise.

Investors saw the increased efforts by the eurozone's central bank as another reason for optimism following a recent proposal led by Germany and France to issue centrally backed bonds, a move seen to address financial divisions that have long plagued the eurozone. Should the proposal be accepted by all 27 EU members, it would provide grants and loans to the countries hit hardest by the coronavirus pandemic.

"It's a two-pronged attack from the Europeans. You've got the support from the ECB and the support from the EU recovery fund," said Mohammed Kazmi, a portfolio manager at Union Bancaire Privée.

The moves have sent the euro on its longest winning streak against the dollar since December 2013 through Wednesday. But the euro's gains could be capped as the ECB expects gross domestic product for the eurozone to contract by 8.7% this year.

While the additional stimulus is helpful, "the markets may be getting a bit ahead of themselves in how good this will be for the eurozone economy," said Viraj Patel, a foreign exchange and global rates strategist at research firm Arkera. "If anything, the ECB has to do more."

In U.S. markets, the yield on 10-year Treasurys climbed to 0.809%, from 0.761% Wednesday.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com


Stocks mentioned in the article
ChangeLast1st jan.
MEMBERS CO., LTD. -0.97% 1424 End-of-day quote.-37.46%
RISE, INC. 3.03% 34 End-of-day quote.13.33%
THE GLOBAL LTD. 1.40% 218 End-of-day quote.-53.72%
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