Euro powers past $1.13 in Europe

The euro rallied across the board on Thursday as German Bund yields reached eight-month highs, extending gains made after the European Central Bank played down the impact of bond market volatility. Having recorded their biggest two-day gains since 1998, 10-year German Bund yields, the benchmark for European borrowing costs, reached 0.99 percent on Thursday. The spread between them and the equivalent US Treasury yields narrowed to its tightest in four months.
The euro surged 0.9 percent against the dollar to a two-week high of $1.1380, adding to its biggest two-day gains in over six years. As US traders arrived at their desks in New York, the euro stayed close to that high, up 0.7 percent at $1.1356 at 1100 GMT. Against the yen, the single currency hit a near five-month high of 141.06. Versus sterling, it traded at 73.87 pence, its highest in four weeks. It also surged to a 2-1/2-month peak against the Swiss franc.
"It looks to us that a lot of people are covering their short euro positions and the reason they're doing that is because of the Bund sell-off," said Adam Myers, European head of FX strategy at Credit Agricole in London. "What I think is happening is that lots of the central banks and sovereign wealth funds - the guys that would have an unhedged position in Bunds - are selling Bunds and they're buying back their euro hedges."
The euro had already posted its biggest two-day gains in over six years, on the back of a surprise return to inflation in the euro zone and after ECB President Mario Draghi indicated the central bank would not add more stimulus because of rising yields. News overnight that Greece might be coming close to a deal with its creditors and that it would make a payment due to the IMF on Friday had only a short-lived positive impact on the euro.
"The one thing that seems to me to be really quite astonishing over the last few months is that Greece just doesn't matter (to the foreign exchange market) at all," said Simon Derrick, head of currency research at Bank of New York Mellon in London. "It should because we're talking about what the euro fundamentally is, but it is absolutely clear that the only thing the market is focused on is yield differentials." The resurgent euro dragged down the dollar index, which slid to a near two-week low of 94.651.