Euro steady as doubts emerge over EU recovery fund

London

THE euro was steady on Thursday as investors questioned whether a 750-billion-euro (S$1.17-trillion) European Union (EU) plan to prop up the bloc's coronavirus-hit economies would be delivered.

Overnight implied volatility gauges inched up to hit a one-month high above 8 per cent, suggesting investors were prepared for unexpected moves in the common currency.

The EU executive unveiled a plan on Wednesday to support economies hammered by the pandemic, hoping to end months of squabbling over how to fund a recovery that exposed fault lines across the 27-nation bloc.

Under the proposal, the EU Commission will disburse two-thirds of the funds in grants and the rest in loans to cushion the unprecedented slump expected this year.

The 500 billion euros in grants reflect the wishes of the two biggest EU economies, France and Germany, which came up with a grants-only proposal last week.

"In the event that we actually see the European Commission adopt a proposal in similar nature or stature of the France-Germany proposal, we do think that would be positive for the euro," said Parisha Saimbi, G10 FX strategist at BNP Paribas.

French Finance Minister Bruno Le Maire told France 2 television on Thursday that he hoped the EU could reach a deal on the package in the coming weeks.

The euro was last flat at US$1.1010, having risen earlier to a two-month high of US$1.1035. The euro was up 0.1 per cent versus the Swiss franc at 1.0670, though the day prior, it rose to nearly a three-month high.

An index tracking the US dollar against major currencies was stable at 98.93, as the greenback held its own in a cross-current between rising Sino-US tensions and optimism over recovering global growth as economies re-open.

The war of words between the world's two biggest economies escalated, with Hong Kong the newest flashpoint, and US Secretary of State Mike Pompeo saying on Wednesday that China's plan to impose laws there was "only the latest in a series of actions that fundamentally undermine" the former British colony's autonomy and freedoms.

The United States is currently crafting a range of options to punish China over its tightening grip on Hong Kong, including sanctions, tariffs and restrictions on Chinese companies, said people familiar with the discussions.

The yuan was neutral at 7.1751 in the offshore market, though it remained close to the 7.1965 record low it sank to the day before. REUTERS