By Peter Nurse
Investing.com – U.S. Dollar pressed higher in early European trade on Wednesday amid doubts about a potential vaccine against the Covid-19 virus, but it has been the euro that has shone the most as the Franco-German proposal for a single EU recovery fund gains traction.
At 3 AM ET (0700 GMT), the one tracking greenback against a basket of six other currencies stood at 99.457, up 0.1%.
Late Tuesday, a report from medical news site STAT cast doubt on encouraging early results from a Moderna (NASDAQ 🙂 COVID-19 vaccine study, citing U.S. drug manufacturer had provided insufficient data to determine the efficacy of the vaccine.
Investors turned to dollars at the safe haven after the report dashed hopes of a possible cure for the virus.
However, the dollar has not been able to make gains against the euro, as the single currency is still basking in the glow of the joint proposal by France and Germany on a European recovery fund.
This fund, totaling 500 billion Euro ($ 545 billion), would be distributed to EU countries most affected by Covid-19, with the money provided as a subsidy instead of a loan.
“The Franco-German deal is big news. This has made it difficult for speculators to close their short positions on the currency,” Kyosuke Suzuki, director of forex at Societe Generale (OTC :), said in a Reuters report.
The proposal will undoubtedly face opposition from some of the wealthier EU members, but is seen as an important step towards a stronger common fiscal policy that complements the euro’s monetary funds.
3 AM traded 0.2% higher at 1.0945, having previously hit a two-week high of $ 1.0975.
Sterling remains under pressure after the U.K. Chancellor Rishi Sunak warned that the country is facing a “severe recession that we have not seen.”
Adding pessimism to the economic paths has been full negotiations with the EU on a potential trade agreement.
“We continue to think that negotiations will get worse before they get better (including not expecting an extension of the current transition period ending at the end of this year), which is the main reason we still looking for more GBP’s weakness in the coming months, ”Danske Bank analysts said in a research note to customers.
Bank of England Governor Andrew Bailey will speak at 1 p.m. 9:30 am ET, amid strong speculation that the bank will cut its policy rate below zero at its next policy meeting.
3 AM ET traded 0.1% lower at 1.2243.
Elsewhere, 0.1% rose to 107.75 after the country’s Tankan survey found that Japanese business confidence hit the lowest levels in May.
rose 0.1% to 7,1040 after China’s central bank announced earlier in the day that it would not change its mortgage interest rates in line with investor expectations. Meanwhile, the two-month high hit the dollar as oil prices recovered further.