Investing.com -- EUR/USD continued on a path of unprecedented volatility on Friday, as the euro appreciated sharply against the dollar days after parity appeared inevitable.
Two days after relatively dovish comments from Fed chair Janet Yellen sent the dollar spiraling, the euro gained more than 1.5% against its American counterpart on Friday to end the week at 1.0824. Last week at this time, the euro plunged to 1.05 -- reaching an 11-year low.
Although Yellen indicated that the Fed could start to raise its benchmark Federal Funds Rate by June at the earliest, she still appeared to strike a dovish tone with lower forecasts on inflation and GDP growth. The U.S. central bank also forecasted that interest rates will rise at a slower pace than had previously been expected.
Previously, the euro had been in freefall as expectations for an interest rate hike in the U.S. coincided with the start of the European Central Bank’s EUR 60 billion per month quantitative easing program. In quantitative easing, policy makers purchase securities with the new printed currencies to raise the money supply in the wider system. Monetary easing programs are intended to drive up the market price of bonds. When bond prices increase, yields decrease lowering the rates for mortgages and other loans.
Last month, the spread between yields on the U.S. 10-year and Germany 10-year reached a 25-year high, as yields on U.S. treasuries spiked while the bund plummeted. In recent days, however, yields on U.S. treasuries have moved in an inverse direction. On Friday, U.S. sovereign debt yields fell across the board as the 10-year dropped 0.049 to 1.92, the U.S. 30-year fell 0.035 to 2.503 and the U.S. 2-year dove 0.036 to 0.581.
The euro continued its rally at week’s end, as German chancellor Angela Merkel took a hard stance against Greece in negotiations regarding the euro zone’s bailout package to Athens. Merkel set strict terms on the critical stimulus package Greece could receive from its euro zone creditors, reiterating that it will only be approved if the euro zone approves a list of economic reform measures Athens intends to propose shortly.
Merkel’s comments came ahead of her scheduled meeting with Greece prime minister Alexis Tsipras in Berlin on Monday.
One day after the Greece 10-year spiked to a two-year high of 12.2%, it dropped 54 basis points to 11.1 on Friday.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six major currencies, fell more than 1.40% to 98.05.