Euro jumps on Franco-German proposal for EU fund, joint debt

May 18, 2020 | Insights

The euro jumped on Monday against the dollar and Swiss franc after Germany and France issued a call for a 500 billion-euro ($545.65 billion) recovery fund for Europe and proposed to allow the European Commission to borrow money on markets to finance the fund.

The Franco-German deal, described by French president Emmanuel Macron as a major step forward, seeks to break the impasse over joint euro debt and act as a blueprint for a wider EU agreement.

The euro was 0.9% higher against the dollar at 1.0915 after rising as high as $1.0926, its strongest since May 4.

“Comments from Merkel and Macron show progress towards joint debt issuance in the EU, with measures looking to protect struggling industries via grants as opposed to loans which would merely delay insolvency,” said Simon Harvey, FX analyst at Monex Europe.

“Although the measures outlined are merely proposals at this point, it gave the euro the green light to rally against a vulnerable dollar in today’s session,” Harvey said.

Against the Swiss Franc, the euro jumped 1.01% to a more than 2-month high.

Against a basket of currencies the U.S. dollar index was 0.747% lower at 99.64.

The dollar was also pressured by strength in commodity-linked currencies after oil prices jumped on Monday, with both U.S. and Brent benchmarks on track for their highest settles in two months, supported by optimism about resumption in economic activity and steady output cuts from major producers.

The dollar fell 1.79% against the Norwegian crown and eased 1.03% against the Canadian dollar.

The gradual easing of lockdowns has raised hope across global markets despite fresh trade tensions between the United States and China, though traders were wary of taking big bets before more data this week.

“The surge in oil prices will also provide a selective opportunity to sell the U.S. dollar against oil-sensitive major currencies,” wrote Stephen Innes, chief global markets strategist at AxiCorp.

Stronger appetite for risk also weighed on the dollar as investors took heart from U.S. Federal Reserve Chairman Jerome Powell’s willingness to print more dollars and extend the monetary stimulus to fight the coronavirus economic crisis..

Sterling climbed off eight-week lows against the dollar as broad dollar weakness helped the currency shrug off talk of negative interest rates from the Bank of England and a stalemate in Brexit negotiations. The pound was last 0.73% against the greenback.

(Reporting by Saqib Iqbal Ahmed; Additional by Sujata Rao and Julien Ponthus in London; Editing by Nick Zieminski)



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