Euro maintains firm tone on EU joint recovery fund, yen soft

Euro currency bills are pictured at the Croatian National Bank in Zagreb
FILE PHOTO: Euro currency bills are pictured at the Croatian National Bank in Zagreb, Croatia, May 21, 2019. REUTERS/Antonio Bronic

May 20, 2020

By Hideyuki Sano

TOKYO (Reuters) – The euro held firm on Wednesday, basking in the afterglow of a Franco-German proposal for a common fund that could move Europe closer to fiscal union.

The dollar also edged higher against the safe-haven yen to edge near a five-week high though it was capped by renewed scepticism on coronavirus vaccine developments.

The euro stood flat at $1.0924 <EUR=>, having hit a two-week peak of $1.09755 in European trade.

The common currency also fetched 1.0615 franc <EURCHF=>, after rising almost 1.0% so far in the week against the safe haven currency while against the yen, it stood near five-week highs of 118.20 yen <EURJPY=>.

“The Franco-German agreement is big news. This has made it difficult for speculators to close their short positions on the currency,” said Kyosuke Suzuki, director of forex at Societe Generale.

France and Germany proposed on Monday a 500 billion euro ($543 billion) Recovery Fund to offer grants to regions and sectors hit hardest by the coronavirus pandemic and to allow borrowing by the European Commission on behalf of the whole EU.

The proposals, while facing opposition from wealthier EU members, could move the European Union a step closer to a transfer union that would help mitigate various economic imbalances in the currency bloc.

Also helping the common currency was a survey showing German investor sentiment improved much more than expected in May as concerns eased over the impact of the coronavirus pandemic on Europe’s largest economy.

The U.S. dollar tacked on 0.2% against the yen to 107.94 yen, near a five-week high of 108.085 hit in U.S. trade on Tuesday.

The U.S. currency lost traction on Tuesday after a report from medical news website STAT said early data from Moderna Inc’s <MRNA.O> COVID-19 vaccine was insufficient, pouring cold water on optimism sparked a day earlier by the company’s announcement.

Data showed U.S. homebuilding dropped by the most on record last month and permits for future construction tumbled, a stark reminder of the heavy economic toll exacted by the outbreak.

The dollar index <=USD> stood at 99.571, essentially stuck in its well-worn range since early April.

Sterling traded at $1.2251 <GBP=D4>, flat so far on the day while the Australian dollar fetched $0.65385 <AUD=D4>, after having hit a two-month high of $0.6585 overnight.

(Reporting by Hideyuki Sano; Editing by Shri Navaratnam)

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