U.S. dollar remains low. Risk aversion on FX markets

The U.S. dollar still traded low, near to 99.225 points on Wednesday. The Euro’s gains caused the greenback’s drawback. Traders waited for the outcome of the Fed’s policy minutes from the last meeting, avoiding any sudden moves. Broader currency market volatility tumbled down to its lowest level in more than two months as well.

Meanwhile, the safe-haven Swiss franc firmed against the U.S. currency and the Euro. While the change is quite subtle, traders still seem to be in risk aversion mood presently.

In times like these, riskier currencies usually decline. However, kiwi gained during the last session. Adrian Orr, New Zealand’s central bank chief, announced that he would detain from the possibility of negative rates currently. His decision lent support to the New Zealand dollar.

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What about the Euro?

On Wednesday, the Euro surged forward by 0.18% to $1.0945. The currency is near the two-week high of $1.09755 reached on Tuesday. So far, the moves were insignificant, all within recent ranges due to the presence of large option expiries around current market levels. Meanwhile, the Swiss franc jumped up due to some risk aversion in forex markets.

France and Germany proposed a 500 billion euro recovery fund to offer grants to those sectors and regions which suffered most from the coronavirus pandemic. The proposal for a common fund underpinned the demand for the Euro. Especially considering that initiators are also allowing borrowing by the European Commission on behalf of the whole EU.

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

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 – stated John Velis, an FX strategist at BNY Mellon.