ECB President Mario Draghi sticks to his promise to do everything in his powers to preserve the euro. He revealed a new and potentially unlimited bond-buying program on Thursday aimed at to reducing the borrowing costs for troubled member states.
Yields on Spanish 10-year government bonds dropped below 6 percent for the first time since May. Italian yields also fell and lifted the euro across the board. The common currency rose to its highest levels against the Swiss franc in eight months, according to data from the trading platform EBS.
Some analysts said the euro may advance further against the dollar in the near future. This could be prompted by more position squaring and the risk of further monetary easing by the U.S. Federal Reserve.
George Saravelos, G10 FX strategist at Deutsche Bank, said that the euro is expected to rise above $1.27 in the near future. He added that Draghi has lowered the risk premium towards the euro and this would be reflected in the euro/Swiss fluctuations.
The euro increased 0.6 percent at $1.2701 on EBS, which is its highest since late June. In this way it knocked out a reported option barrier at $1.2660. Traders noted that more barriers were cited at $1.2700 with offers to sell by sovereign funds layered around those levels.
The euro also rose to a two-month high of 100.30 yen, up 0.4 percent on the day, and to 1.21555 Swiss francs.
The plan of Draghi gave a huge boost to riskier assets such as stocks and put reliable currencies like the yen and Swiss franc under pressure.
The dollar rose slightly by 0.1 percent to 78.96 yen, which is not far from a three-week high of 79.04.
The yen has capitulated against the dollar this week with strong data on U.S. private-sector employment prompting a rise in Treasury yields.
Investors will wait for U.S. jobs data due at 8:30 a.m. EDT (1230 GMT) for further hints on whether the Fed will initiate another bond-buying program, or quantitative easing, after its policy meeting next week.
The Australian dollar rose 0.6 percent to $1.0345, and steadied after growing roughly 0.9 percent on Thursday. It happened after traders lowered their expectations about the commodity currency.
A flood of Chinese data on Sunday may be challenging for the Australian dollar, which has ceded over the past month on concerns about a stagnation in China.