LONDON (Reuters) – The euro continued to rise on Thursday, bolstered by a € 750 billion (£ 673.70 billion) EU plan to support the bloc’s coronavirus-affected economies, although profits were limited as doubts about delivering the system crept in.
FILE PHOTO: US dollars and euro banknotes are seen in this November 7, 2016 illustration. REUTERS / Dado Ruvic / Illustration / File Photo
The EU chief executive unveiled a plan on Wednesday to support economies hampered by the pandemic and hoped to end months with crushes on how to fund a recovery that exposed fallouts across the 27-nation bloc.
According to the proposal, the European Commission will distribute two-thirds of the funds in grants and the rest in loans to cushion the unprecedented decline expected this year.
EUR 500 billion in grants reflects the wishes of the two largest EU economies, France and Germany, which made a single proposal last week.
“In the event that we actually see the European Commission adopt a proposal of a similar nature or status to the proposal between France and Germany, we believe it would be positive for the euro,” said Parisha Saimbi, G10 FX strategist at BNP Paribas.
“We expect to see the euro / dollar head higher, and in particular the euro / Swiss head higher, especially given that the long position in Swiss (franc) has been built up quite significantly and as a result, an upward movement to the upside could be seen that positions are covered, ”she said.
French Finance Minister Bruno Le Maire told TV 2 on Thursday that he hoped that the European Union could reach an agreement on the package in the coming weeks.
The euro rose 0.1% to $ 1.1016, rising previously to a two-month high of $ 1.1035. The euro was steady against the Swiss franc at 1.0664, although the day before it rose to almost a three-month high.
Delivered hedge funds held $ 1.14 billion in Swiss franc-long positions during the week to May 19, CFTC data shows, a nearly four-year high.
An index that tracks the US dollar against major currencies was stable at 98.93 as the greenback held its own in a cross between rising Chinese American tensions and optimism about recovering global growth as economies reopened.
The word war between the world’s two largest economies escalated, with Hong Kong the latest flashpoint, with US Secretary of State Mike Pompeo on Wednesday saying that China’s plan to introduce laws there was “only the latest in a series of measures that fundamentally undermine” the former British colony autonomy and freedoms.
The United States is currently creating a range of options to punish China for its tight grip on Hong Kong, including sanctions, tariffs and restrictions on Chinese companies, according to people familiar with the discussions.
The yuan was neutral at 7.1725 in the offshore market, although it remained close to record lows of 7.1965 as it fell the day before.
Reporting by Olga Cotaga; Editing by Nick Macfie