The euro rose on Monday, posting a four-month high against the U.S. dollar, as traders reacted with optimism to the noises coming from the EU summit regarding a potential agreement for a massive recovery fund for the region.
At 3:05 AM ET (0705 GMT), EUR/USD gained 0.2% to 1.1443, having earlier posted a four-month high of 1.1467, while EUR/GBP climbed 0.3% to 0.9118.
After three days of haggling, European Union leaders have yet to agree on how to structure the proposed recovery fund, seen totaling 750 billion euros, and what conditions to put on the countries, mainly from the Mediterranean rim, that would benefit from the fund.
That said, they have agreed to return on Monday afternoon in an effort to finish the negotiations, suggesting the two sides are not too far apart.
“Tough negotiations just came to an end,” Austrian Chancellor Sebastian Kurz said in a tweet, earlier Monday. “We can be very happy with today’s result. It will continue this afternoon.”
Austria is one of the four European Union governments, along with the Netherlands, Denmark and Sweden, that have been holding up negotiations over the deal, concerned about the level of monitoring over how the funds will be used.
Bloomberg reported Monday that these four governments are now satisfied with 390 billion euros of the fund being made available as grants with the rest coming as low-interest loans, a key component of the deal.
“If this is true, then it is a fairly decent deal that goes through. The hardliners need to understand that grants are necessary continously going forward, if they want a well-functioning EUR. Permanent money transfers from North to the South will be required,” said Andreas Steno Larsen, Global Chief FX & Rates Strategist at Nordea, in a tweet.
Elsewhere, the ICE (NYSE:ICE) Dollar Index, which tracks the greenback against a basket of six other currencies, was flat at 95.925, near the four-month low it posted last week. GBP/USD dropped 0.1% to 1.2553, while USD/JPY was up 0.3% at 107.27.
The dollar has been unable to post gains despite the number of coronavirus infections having climbed above 14.5 million, with over 600,000 deaths world wide, according to data from Johns Hopkins University.
The virus has claimed over 140,000 U.S. lives in total. Florida announced over 12,000 new cases on Sunday, while the Mayor of Los Angeles said his city is on the brink of new lockdown measures.
These numbers will put pressure on U.S. policymakers to agree on further measures to stimulate the country’s economy, particularly as some policies are due to expire at the end of July.
“We see more political pressure on the Republicans to compromise on Democratic objectives because Republicans are trailing badly in polls… Senate Republicans are not in a position to hold back stimulus,” Reuters quoted Steven Englander, head of global FX strategy at Standard Chartered (OTC:SCBFF) Bank in New York, as saying.