Euro hits new 4-month high after recovery deal

London

THE euro hit its strongest since early March on Tuesday after European Union countries struck a deal for a massive stimulus plan to revive their coronavirus-hit economies, while an upturn in sentiment sent the Australian dollar to a one-year high.

The EU deal - a compromise on concerns that thrifty northern states had about handouts for more profligate neighbours - was hailed as an important signal of unity by Europe's leaders and a foundation for economic recovery.

With encouraging results from several Covid-19 vaccine trials also boosting market sentiment and stock markets rallying, a clutch of currencies notched up recent highs against the safe-haven US dollar.

The euro rose 0.2 per cent to US$1.1470 in Asian trading hours, its strongest since March 9. Gains were tempered by prior market expectations that a deal would eventually be agreed and the euro's recent run higher as the recovery fund was negotiated.

The single currency was last up 0.1 per cent at US$1.1454.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Analysts said there was little new information in the final deal to spur the euro much higher immediately, with the breakdown between grants and loans already known.

"For the time being, no further momentum for the euro can be expected from either the fiscal or monetary policy side," Commerzbank analyst Esther Reichelt said.

"From now on, it is primarily the recovery of the real economy and the development of (coronavirus) infections that will determine how the euro will perform going forward," Ms Reichelt said, adding that US$1.14 was a justified price.

The US dollar was flat when measured against a basket of currencies, and last at 95.675.

ING analysts said they are looking for "more gains to US$1.20 later this year as USD weakness kicks in" because the recovery fund agreement is significant enough "not to prompt investors to exit their long EUR positions (particularly against USD, where the outlook for the remainder of the year looks bleak)."

The Australian dollar rose as much as 0.8 per cent to US$0.7071, its highest since July 2019, helped by the bullish mood and after the central bank offered few surprises in minutes from last month's meeting.

In a speech, Governor Philip Lowe also said that although he would prefer a cheaper Aussie dollar, its 27 per cent recovery from March lows was supported by fundamentals. REUTERS