Recovery Fund Plan Keeps the Euro Afloat
The euro has continued to show strength in early European forex trading on Thursday. Traders continue to the upside in the single currency following the announcement of a hefty plan to help the economies.
In forex, the euro U.S. dollar pair traded 0.1% higher at 1.1013, remaining above 1.10 level. Earlier it rose to an eight-week peak of $1.1035.
This follows the EU Commission’s announcement of plans for a European recovery fund on Wednesday. This is with the proposal exceeding market expectations as it envisages 250 billion euros in loans.
Also, this is on top of the 500 billion euros in grants, originally proposed by France and Germany last week.
The blueprint, if ratified by all, would be a step towards mutualized debt. This is a major funding tool for the first time, paving the way for greater EU powers of taxation.
Analysts at Danske Bank said the recovery fund proposal is a strong signal of support for the European project.
The Euro Goes Steady
The euro goes steady as investors questioned whether the 750 billion euro European Union plan would be delivered.
Overnight implied volatility gauges inched up to hit a one-month high above 8%. It is suggesting investors were prepared for unexpected moves in the common currency.
Elsewhere, the U.S. Dollar Index stood at 98.828, down 0.2%, while USD/JPY gained 0.1% to 107.84.
Losses to the safe-haven greenback came despite increasing tensions between China and the United States. The Trump administration could no longer certify Hong Kong’s political autonomy from China said Secretary of State Mike Pompeo. This is under the new national security law.
Moreover, this could open the door to options including visa restrictions, asset freezes, and potential tariffs.
That said, U.S. business groups have urged President Donald Trump to go slowly. This is in his response to Beijing’s planned imposition of new national security laws on Hong Kong.
In FX news, the yuan gained 0.2% to 7.1556 per dollar. The currency is often seen as a barometer of relations between the world’s two biggest economies.
Another currency showing strength on Thursday was sterling. The U.K. government announced plans late Wednesday for its test and trace system to combat the coronavirus pandemic.
The system gears towards lifting national lockdown restrictions and moving towards more localized, targeted measures.
Meanwhile, in forex news, GBP/USD gained 0.2% to 1.2270.
