Euro up on proposed EU recovery package

London

THE euro headed towards a two-month high on Wednesday after the European Commission proposed a coronavirus economic recovery package worth in total 1.85 trillion euros (S$2.89 trillion).

The euro has struggled since falling in March, when investors rushed for the safety of US dollars. But analysts say the recovery fund proposals, if they can win over the European Union members sceptical of an earlier Franco-German plan, could push the euro higher.

Should the European Commission approve the new proposal, "it would reduce the risk of a slump in peripheral Europe, notably Italy, and increase the likelihood of a synchronised recovery across the continent," said Marshall Gittler, an investment analyst at BDSwiss Group.

The euro rose as high as US$1.1031 before falling to US$1.1017, still up 0.3 per cent. The US dollar, previously higher against a basket of currencies was last down 0.2 per cent at 98.811.

Worries about the United States' response to China's proposed security law for Hong Kong injected a more cautious tone into foreign exchange markets.

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Some investors are betting on a rapid resumption of economic activity following the crippling coronavirus outbreak. Others worry the threat of US sanctions against China for its treatment of Hong Kong could worsen risk sentiment again.

Renewed protests in Hong Kong added to the nervous mood.

"Yesterday's (Tuesday's) risk-on rally is already running out of steam. That seems quite right, but not just because of the tensions between the US and China," said currencies analyst Thu Lan Nguyen at Commerzbank.

She said the economic outlook remained uncertain as countries re-open their economies, not least in predicting how consumers will behave once they can shop and travel more freely.

The offshore yuan fell to its lowest against the US dollar since September of last year, during the US-China trade dispute.

The US dollar gained 0.4 per cent at 7.1766 yuan, not far from the offshore yuan's record low of 7.1975 in September.

US President Donald Trump said on Tuesday the US would announce before the end of the week its response to China's planned security bill for Hong Kong.

The US dollar rose against Japan's currency, last trading up 0.1 per cent at 107.72 yen. Sterling dipped while the Australian dollar briefly hit a two-and-a-half month high of US$0.6680. REUTERS