- Euro (EUR) rises as EU leaders’ talks move into a fourth day and hopes are high that a deal on the recovery fund can be reached
- Weaker than forecast German inflation at wholesale level (PPI) is shrugged off
- US Dollar (USD) investors weigh up rising covid statistics and double dip recession fears with stimulus optimism and vaccine hopes
After ending the previous week 1.1% higher, the Euro US Dollar exchange rate is on the rise at the start of the new week. The pair settled on Friday at US$1.1428. At 07:15 UTC, EUR/USD trades +0.2% at US$1.1450, after having reached a fresh four month high of US$1.1467.
The Euro is bounding higher amid optimism that the EU leaders will reach a deal over the EU Recovery Fund as haggling goes into the fourth day. The Recovery Fund is aimed at helping those countries most severely affected by the coronavirus crisis, such as Italy and Spain.
The €750 billion Fund is to be split between grants totalling €500 billion and loans. However, the Frugal Four – the Netherlands, Sweden, Denmark and Austria are only willing to accept a compromise of grants totalling €390 billion. It remains to be seen whether this compromise satisfies Germany, France, Italy and Spain? Euro investors seem to think that this is almost a done deal.
Data wise German inflation at wholesale level was slightly disappointing at 0% month on month in June, less than the +0.2% increase forecast but still an improvement on the -0.4% recorded in May. This hasn’t knocked demand for the common currency.
The US Dollar is trading mildly higher versus its major peers as investors weigh up stimulus talk versus rising coronavirus statistics. US Congress will begin its debate on additional stimulus to support the US economy as areas in the sunbelt re-impose lockdown measures.
New daily coronavirus cases remain elevated at 70,000, hospitalisation rates and fatalities are rising in the worst affected states. Fears of a double dip recession are also increasing, particularly after consumer confidence data for July unexpectedly declined.
There is no high impacting US data due until later in the week, leaving the US Dollar vulnerable to sentiment drivers. News on Oxford University and AstraZeneca’s phase 3 vaccine trial could drag on the safe haven US Dollar later today, if the results are sufficiently upbeat.
