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Recovery Fund Plan Keeps the Euro Afloat

The euro has continued to show strength in early European forex trading on Thursday. Traders continue to support the single currency following the announcement of a hefty plan to help the economies.

In forex news, the euro U.S. dollar pair traded 0.1% higher, at 1.1013, remaining above 1.10. Earlier it rose to an eight-week peak of $1.1035. 

This follows the EU Commission’s announcement of plans for a European recovery fund on Wednesday. As the proposal is exceeding market expectations, it envisages 250 billion euros in loans.

Also, this is on top of the 500 billion euros in grants, originally proposed by France and Germany last week.

The blueprint, if ratified by all, would be a step towards mutualized debt. This is the first major funding tool, paving the way for greater EU powers of taxation.

Analysts at Danske Bank said the recovery fund proposal is a strong signal of support for the European project.

The Euro Goes Steady

The euro is going steady as investors questioned whether the European Union would deliver their 750 billion euro plan.

Overnight implied volatility gauges inched up to hit a one-month high, above 8%. This suggests investors were prepared for unexpected moves in the common currency.

Elsewhere, the U.S. Dollar Index stood at 98.828, down by 0.2%, while the USD/JPY gained 0.1% to 107.84.

The safe-haven greenback experienced losses despite increasing tensions between China and the United States. The Trump administration could no longer certify Hong Kong’s political autonomy from China, said Secretary of State Mike Pompeo. This is under the new national security law. 

Moreover, this could open the door to options including visa restrictions, asset freezes, and potential tariffs.

That said, U.S. business groups have urged President Donald Trump to go slowly. This is in his response to Beijing’s planned imposition of new national security laws on Hong Kong.

In FX news, the yuan gained 0.2% to 7.1556 per dollar. The currency is often seen as a barometer of relations between the world’s two biggest economies.

Another currency showing strength on Thursday was sterling. The U.K. government announced plans on late Wednesday for its test and trace system, meant to combat the coronavirus pandemic. 

The system gears towards lifting national lockdown restrictions and moving towards more localized, targeted measures.

Meanwhile, in forex news, GBP/USD gained 0.2% to 1.2270.

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