Euro takes a breather after four-day rising streak

London

THE euro steadied on Thursday after a four-day rising streak that was fuelled by optimism of a closer fiscal union in Europe fizzled out, with US-China tensions and concerning economic data coming to the fore.

France and Germany proposed a 500 billion euro (S$778 billion) recovery fund on Monday to offer grants to regions and sectors hit hardest by the coronavirus pandemic, raising hopes that European policymakers were taking more decisive steps to tackle the economic damage.

The news lifted the euro from the US$1.08 levels where it has been languishing for the last two months, and pushed it towards US$1.10, though the single currency remains more than 4 per cent away from the 2020 highs of US$1.15 levels tested in early March.

But on Thursday, the euro took a breather, easing down 0.04 per cent to US$1.0974, as stock markets across Europe traded in negative territory as fresh data again showed the devastating impact of the coronavirus on the eurozone economy, though the situation eased as some governments partially lifted lockdowns.

Having crashed to what was by far its lowest reading in the survey's nearly 22-year history last month, IHS Markit's Flash Composite Purchasing Managers' Index (PMI), seen as a good gauge of economic health, recovered to 30.5 from April's 13.6.

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"The big picture is that the index is consistent with economic activity in the region remaining very depressed even as lockdown measures are being gradually lifted," said Jessica Hinds at Capital Economics.

While the business slump in France and Germany eased to some extent, the data was nevertheless less favourable than expected.

British PMI data showed the economy flattened out a bit this month from April's nosedive.

Hopes of a quick economic recovery have been dashed in recent days as recent openings in Asian economies have shown that consumers are slow to return to normal behaviour.

The pound, which remains under pressure as weak inflation drives speculation the Bank of England may cut interest rates below zero, pared some losses after the PMI data was released.

Sterling was down 0.08 per cent at US$1.2227 and lost only 0.04 per cent against the euro.

With risk appetite broadly on the back foot, the greenback rose 0.13 per cent to 99.30 against a basket of its rivals while US stock futures were trading in the red as Sino-US trade tensions swirled in the background.

Diplomatic relations between the world's two biggest economies have soured in recent weeks, with US President Donald Trump attacking China's handling of the coronavirus outbreak. REUTERS