The euro on Tuesday climbed to its highest against the U.S. dollar in more than four months after European Union countries struck an agreement on a massive stimulus plan to revive their coronavirus-battered economies.
An upturn in sentiment following the EU deal lifted the Australian dollar to a 15-month high, the New Zealand currency to a six-month peak and the Canadian dollar to its strongest level in six weeks. These are commodity currencies that thrive when risk appetite rises.
The EU deal – a compromise on concerns that thrifty northern states had about handouts for more their more profligate neighbors – was hailed as an important signal of unity by Europe’s leaders and a foundation for economic recovery.
“There was all this anticipation for this rescue package, which was almost guaranteed that it will pass and when it did, it made everybody happy,” said Juan Perez, currency trader at Tempus Inc in Washington.
“And this kind of symbolizes the fact that the European Union is going to work together to achieve fiscal integration for this rescue package. And it came to fruition,” he added.
Encouraging results from several COVID-19 vaccine trials also boosted market sentiment and drove a rally in global stock markets.
In mid-morning trading, the euro rose 0.1% to $1.1457, after earlier hitting $1.1470, the highest since early March. Gains were tempered as investors had already priced in an EU agreement.
Analysts said there was little new information in the final deal to spur the euro much higher immediately, with the breakdown between grants and loans already known.
“From now on, it is primarily the recovery of the real economy and the development of (coronavirus) infections that will determine how the euro will perform going forward,” said Commerzbank analyst Esther Reichelt said.
Graphic: Euro vs U.S. dollar – here The dollar was down 0.1% against a basket of other currencies at 95.592 .
ING analysts said they are looking for “more gains to $1.20 later this year” as dollar weakness kicks in because the recovery fund agreement is significant enough “not to prompt investors to exit their long euro positions,” particularly against the dollar, where the outlook has darkened for the rest of the year.
The Australian dollar was last up 1.2% at US$0.7099, also lifted after the central bank offered few surprises in minutes from last month’s meeting.
In a speech, Governor Philip Lowe said while he would prefer a cheaper Aussie dollar, its 27% recovery from March lows was supported by fundamentals.
The New Zealand dollar rose 0.8% to US$0.6623.
The Canadian dollar strengthened 0.6% to 1.3447 Canadian dollars per U.S. dollar..
The dollar fell 0.2% against the yen to 107.01.