Mon, August 15, 2022

The Euro gained on Wednesday. Why did currency rally?

Euro and U.S. dollar

The Euro climbed up by 0.18% to $1.0945 on Wednesday, near the two-week high of $1.09755 reached on Tuesday. If the currency surpasses that point, it could open the way for a test of a new high of $1.1019, which it reached on May 1. However, the moves were insignificant and within recent ranges because of the presence of large option expiries around current market levels.

On Monday, France and Germany proposed a 500 billion euro recovery fund. They wanted to give grants to the sectors and regions hit hardest by the pandemic. They are also allowing borrowing by the European Commission on behalf of the whole EU as well. The proposal for a common fund underpinned the demand for the Euro. Meanwhile, some risk aversion in forex markets boosted the Swiss franc as well.

According to John Velis, an FX strategist at BNY Mellon, the Franco-German proposal means that major players are getting serious about pushing the limits to region-wide fiscal spending to offset the costs of the coronavirus crisis.

The amount of the proposed fund is relatively small compared to the size of some of the major European economies. However, the proposal has relieved some of the selling pressure on the Euro by hedge funds seen in the last few weeks.

How did the U.S. dollar fare?

The dollar held near a three-week low of 99.225, which it hit in the previous session as the Euro’s gains pushed it onto its back foot. Broader currency market volatility also dropped to its lowest level in more than two months. This was while traders waited for the outcome of the Fed’s policy minutes from the last meeting.

Meanwhile, New Zealand central bank chief, Adrian Orr, decided to detain from the possibility of negative rates, for now. His decision lent support to the kiwi. Still, the Swiss franc firmed against the U.S. dollar and the Euro. And a distinct tone of risk aversion was evident in forex markets.


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