Euro Hits New Four-Month High After Pandemic Recovery Deal

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The euro hit its strongest level since early March on Tuesday after the European Union (EU) struck a deal for a massive stimulus plan to revive their coronavirus-hit economies.

The hard-won 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 recovery.

It sent the euro 0.2% higher to $1.1470, its strongest since March 9, though the gains were tempered by prior market expectations that the deal would eventually get agreed and the euro’s recent run higher.

The single currency was last down 0.1% at $1.1442.

Also supporting broader sentiment, as well as commodity-linked currencies, were encouraging results from several COVID-19 vaccine trials.

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

Commerzbank analyst Esther Reichelt said that the “compromise fulfilled market expectations but did not go beyond that.”

“For the time being, no further momentum for the euro can be expected from either the fiscal or monetary policy side. From now on, it is primarily the recovery of the real economy and the development of infections that will determine how the euro will perform going forward,” Reichelt said, adding that $1.14 was a justified price.

The dollar was flat when measured against a basket of currencies, and last at 95.813.

“The mix of the agreement on the EU recovery fund (and the EU budget) and the news on progress on a Covid 19 vaccine in Oxford University testing should keep the risk environment supported today, with the dollar left struggling against its G10 peers,” ING analysts said.

Commodity-linked currencies rose.

The Australian dollar gained 0.5% to $0.7049, its strongest since June 10, after the central bank offered few surprises in minutes from last month’s meeting or a speech from Governor Philip Lowe.

Lowe said Australia’s monetary policy would remain accommodative for as long as necessary and added that although he would prefer a cheaper Aussie dollar, its 27% recovery from March lows was supported by fundamentals.

Sterling also benefited from the broad improvement in risk sentiment, adding as much as 0.4% to $1.2716, its highest since June 11. It rose 0.3% against the euro to 90.16 pence.

Markets were generally quiet elsewhere, with most currencies trading in tight ranges.

The yen was flat versus the dollar at 107.31.

– Reuters.

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