The Euro is driving higher versus the weaker US Dollar on Tuesday. The Euro US Dollar exchange rate settled on Monday +0.87% above the key US$1.09 support.
At 08:15 UTC, EUR/USD is trading +0.3% at US$1.0940. This is the upper end of the daily traded range and a two-week high on vaccine hopes, agreement of an EU reconstruction fund and ahead of German ZEW Sentiment data.
EUR: France & Germany Agree €500 Billion Rescue Fund
A breakthrough for the European Union is lifting the Euro, as Germany and France announced the agreement of a €500 billion fund to help Europe recover from the coronavirus outbreak.
The funds will come from the EU budget and offers grants to those countries and sectors hardest hit by the covid-19 crisis. This is a huge step forward for the EU as it is the first time that Germany and France have proposed that the EU raise debt jointly.
Investors will now look ahead to the release of ZEW German sentiment data. Analysts are expecting to see a marginal improvement to 33.5 up from 28.2. This index is closely watched because business confidence is essential for any form of economic recovery. Euro-wide sentiment is expected to slip lower.
USD: Vaccine Optimism & Fed In Focus
The US Dollar is extending losses on Tuesday amid a risk rally. As investors’ risk appetite improves, demand for the safe haven dollar is declining.
Sentiment is lifting on vaccines hopes, as economies continue to reopen and on the back of encouraging comments from Federal Reserve Chair Jerome Powell.
Moderna Inc, as US biotechnology firm reported yesterday encouraging vaccine test results. In an early stage, small sample human test, results showed that the vaccine created an immune response to fend off covid-19. The news offered tentative hopes that a vaccine will be found to combat the killer virus. The news comes days after Fed Chairman Powell warned that a full economic recovery may only ever happen with a vaccine.
Jerome Powell will speak again today. He is expected to discuss the measures taken by the Fed to cushion the blow to the economy from coronavirus. His speech comes after the head of the US central bank said that the Fed was not out of ammunition to support the economy “by a long shot”. These comments pulled the US Dollar lower.