Euro stays firm as Fed prepares to buy corporate bonds

London

THE euro was little changed against the US dollar on Tuesday as the US Federal Reserve prepared to start its corporate bond-buying scheme, while a report flagging the possibility of more fiscal stimulus shored up investor confidence.

The US dollar had slipped and riskier currencies rallied during Asian sessions, but after European traders joined the market, most major currencies stabilised, all trading broadly neutral. Still, after a 2 per cent rise so far this month, the euro was close to near US$1.15, this year's high.

The Fed said that it would start buying corporate debt on Tuesday as part of an already announced stimulus scheme, and launched its Main Street Lending Program for businesses.

"We're unfortunately still in this environment where there is still a great deal of uncertainty so when we have episodes where central banks are being seen to be either adding liquidity or supporting the markets as the Fed did in that particular regard, that provides impetus for a risk recovery," said Jeremy Stretch, head of G10 FX strategy at CIBS Capital Markets.

Investor sentiment was further supported by a Bloomberg News report that President Donald Trump's administration was considering a nearly US$1 trillion infrastructure programme to boost the economy, citing anonymous sources.

Taken together, the news reinforced a belief that the authorities will do what it takes to get the world's biggest economy back on track.

Fed chairman Jerome Powell is due to testify before the Senate Banking Committee on Tuesday. He will deliver the same testimony on Wednesday before the House Financial Services Committee.

Investors will be listening for hints that the Fed is willing to do more. "If so, equities and risk-linked currencies are likely to continue their journey north, as investors keep diverting their capital out of safe havens, the likes of the US dollar, the yen and the franc," said Charalambos Pissouros, senior market analyst at JFD Group.

The euro was flat at US$1.1316, recovering from falls a couple of days back after traders feared a second wave of Covid-19 and decided to cash in on any gains.

Beijing banned some people from leaving the Chinese capital and halted transportation services on Tuesday to try to contain a fresh virus outbreak. Global cases of the novel coronavirus have reached over 8 million. Deaths stand at over 434,000 and have doubled in seven weeks.

The dollar/yen was neutral at 107.28.

The Bank of Japan kept monetary settings steady on Tuesday and stuck to its view that the economy will gradually recover from the pandemic, signalling it has taken enough steps to support growth for now. REUTERS