Euro profits from proposals for a common fund in the EU; dollar panties

LONDON (Reuters) – The euro rose higher on Wednesday as a Franco-German proposal for a joint fund that could move Europe closer to a fiscal union that supported demand for the single currency, while some risk aversion in foreign exchange markets also increased the Swiss franc.

The Euro rose 0.18% to $ 1.0945, near a two-week high of $ 1.09755 reached on Tuesday. Bride that could open the way for a test of its May 1 high of $ 1,1019.

But the movements were small and well within the recent ranges due to the presence of large options expired around the current market level.

“It’s a sign that bigger players are getting serious about pushing the boundaries of what we think will inevitably be needed: regional fiscal spending to offset the cost of the crisis,” said John Velis, an FX strategist at BNY Mellon , and refers to the Franco-German proposal.

France and Germany on Monday proposed a EUR 500 billion recovery fund to provide grants to regions and sectors most affected by the coronavirus pandemic and to allow loans from the European Commission on behalf of the EU.

While the size of the proposed fund is relatively small compared to the size of some of the larger European economies, the proposal has reduced some of the selling pressure on the euro by hedge funds seen in recent weeks.

Euro winnings pushed the dollar backwards with the greenback at a three-week low of 99.225 hit in the previous session.

The broader currency market volatility fell to its lowest level in more than two months as investors waited for the outcome of the Federal Reserve’s policy minutes of the last meeting.

Elsewhere, New Zealand central bank governor Adrian Orr withdrew a little from the prospect of negative interest rates – a view he had highlighted just days before – lent support to the Kiwi dollar.

But a marked tone of risk aversion was evident in the markets, with the Swiss franc tightened against the U.S. dollars and euros.