In US trade, the euro surged to its highest levels since early May as investors continued to be optimistic that the ECB would soon recommence its bond purchase programme, targeting the short end of the Italian and Spanish yield curves.
Overnight, this idea received a supportive boost when Jorg Asmussen, the German member of the ECB’s Executive Board, signalled his full support of Mario Draghi's bond-buying programme, noting that purchases may be ’unlimited‘ in scale to price out the ’convertibility risk‘ of a eurozone break-up.
This comment was certainly welcomed by the market and its impact was profound. Spanish 10-year yields fell to 6.15%, taking falls over the month to more than 50 basis points (bp), while two-year yield also descended, taking their cumulative falls over the last month to more than 170 basis points. Elsewhere, Spanish and Italian Credit Default Swaps (CDS) dropped to their low levels since early April suggesting investors are feeling a lot more relaxed about Europe’s prospects, particularly now with the ECB becoming more involved.
Having ended yesterday’s Australian session around the 1.2360 level, the euro pushed steadily north touching a high of 1.2488 before closing US trade at 1.2473. Upon reopening for Asian trade the euro is essentially unchanged.