Euro Hits 4-Month High; EU Leaders Set to Discuss Recovery Fund

Wednesday,   15-Jul-2020   01:22 PM (IST)

The euro has been in demand in early European trade Wednesday, hitting a four-month high after Federal Reserve Governor Lael Brainard hinted at a need for an even easier monetary policy in the U.S. The dollar also suffered more broadly from a rise in risk appetite after positive test data for one of the lead candidates for a Covid-19 vaccine late, published late on Tuesday. At 2:55 AM ET (0655 GMT), EUR/USD gained 0.1% to 1.1408, after reaching its highest level since March 10 at $1.1423 earlier in the session. EUR/GBP dropped 0.2% to 0.9060, with sterling helped by stronger than expected inflation figures in June, but the euro had posted a two-week high of 0.9112 late Tuesday. Additionally, the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 96.093, GBP/USD gained 0.4% to 1.2595 and USD/JPY was flat at 107.23. The single currency has benefited of late--it’s up 1.3% against the dollar over the last month--from the perception that the region has handled the Covid-19 crisis better than most. The economic picture still is grim, however. Only last week, the European Commission downgraded its outlook for the EU economy, saying it would now contract by 8.3% in 2020. However, recent confidence data have tended upward, with Tuesday’s German ZEW survey pointing to continued optimism over the next six months. Looking ahead, “the forthcoming ECB meeting should not change much, with the discussion/progress on an EU Recovery Fund being a more important short-term driver for the EUR/USD,” said analysts at ING, in a research note. There still remain doubts about whether the EU leaders will reach agreement on a 750-billion-euro pandemic recovery fund at this week's summit, amid resistance from more frugal member states. That said, German Chancellor Angela Merkel, who now holds the presidency of the EU Council, was in no doubt of the need of the fund and the importance of its size.