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FOREX-Euro rallies on Franco-German proposal for recovery fund

Reuters | Updated: 19-05-2020 14:26 IST | Created: 19-05-2020 14:26 IST
FOREX-Euro rallies on Franco-German proposal for recovery fund

The euro rallied on Tuesday, propelled by a Franco-German proposal on Monday for a fund that would offer grants to European Union regions and sectors hit hardest by the coronaries pandemic.

The common currency was also buoyed by a weaker dollar, which lost its safe-haven appeal after encouraging results from the trial of a vaccine for COVID-19, boosting riskier assets. Germany and France, whose agreements usually pave the way for broader EU deals, proposed that the European Commission borrow the 500 billion euros ($546.90 billion) on behalf of the whole EU. The commission is expected to outline their proposal for the fund before a European Summit scheduled for May 27.

The euro bought $1.0926 after rising to a two-week high of $1.0945 earlier. And the cost of betting against the euro versus the dollar in currency-derivatives markets fell on Tuesday to the lowest since mid-March. The common currency was 0.2% higher versus the Swiss franc at 1.0622, after rallying to an 11-week high the day before.

"The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery," said Lee Hardman, currency analyst at MUFG. Gauges for overnight euro implied volatility rose to a three-week high of 9.10%, suggesting traders were expecting bigger-than-usual moves in the common currency on Tuesday.

The dollar was down 0.1% against a basket of currencies at 99.51, having touched a two-week low of 99.37 earlier. Moderna Inc's experimental COVID-19 vaccine, the first to be tested in the United States, produced protective antibodies in a small group of healthy volunteers.

"The market’s positive reaction to the report is understandable as finding a vaccine for COVID-19 is the search for the Holy Grail. It would allow a return to normal at a much faster pace and significantly reduce long-lasting damage to the global economy," Hardman said. With governments scaling back lockdown restrictions, investors grew optimistic that economies could soon return to normal.

Trade-sensitive currencies such as the Australian dollar rose to a three-week high of 0.6564. The New Zealand dollar was last up 0.7% at 0.6076. The Swedish and Norwegian crowns rose by 0.3% each to two-month highs .

Still, while coronavirus infection rates in many places have now fallen to levels low enough to allow factories and businesses to re-open, some concern remains because the outbreak is not under control. ($1 = 0.9142 euros)


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