The euro extended four-month highs to the U.S. dollar on Thursday, following a surge in European bond yields on Germany's proposed 500 billion euro ($539.85 billion) infrastructure fund and overhaul in borrowing limits.

The euro has surged to the highest level against the dollar since November, fuelled by tentative debt reform and spending plans in Germany, along with hopes that these efforts could spur growth in Europe's biggest economy.

The euro surged to a nearly four-month high on Wednesday after Germanys conservatives and Social Democrats agreed on a historic debt overhaul, boosting market confidence. The common currency hit $1.0637 before easing

The pound extended a slide against the euro on Thursday, dropping to its weakest level since January as the single currency benefited from an improving growth outlook after Germany announced plans to massively boost fiscal spending.

Germany will unlock hundreds of billions of euros for defense and infrastructure investments in a dramatic shift that upends its ironclad controls on government borrowing.