Euro hits four-month high vs. dollar on stimulus, recovery hopes

TOKYO (Reuters) – The euro rose to a four-month high against the dollar on Wednesday on hopes European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the pandemic.

The dollar was on the defensive, particularly against other growth-leveraged currencies such as the Australian dollar, following an uptick in U.S. inflation and news of progress in vaccine development.

The euro rose to as high as $1.1423 EUR=, its highest level since March 10 and not far off its peak so far this year of $1.1495.

Against the yen, the common currency hit one-month high of 122.47 EURJPY= while it scaled a two-week high against the British pound at 91.125 pence EURGBP=D4.

“Germany, France and Italy have all taken severe lockdown steps and as a result the coronavirus now appears to be under control. The economy could be gradually recovering,” said Bart Wakabayashi, Tokyo Branch manager of State Street Bank and Trust.

The euro has been helped by hopes the European Union could agree at its summit later this week on a rescue financing package that will limit the economic damage to the bloc from the coronavirus pandemic.

The euro’s strength helped to push the dollar index to 96.056, one-month low.

The dollar extended losses on Tuesday after U.S. consumer prices rebounded 0.6% month-on-month, the most in nearly eight years, in June, easing worries about deflationary pressures from the economic downturn.

Further boosting investors’ risk appetite, Moderna Inc’s (MRNA.O) experimental vaccine for COVID-19 showed it was safe and provoked immune responses in all 45 healthy volunteers in an ongoing early-stage study, U.S. researchers reported on Tuesday.

Against that backdrop, the risk-sensitive Australian dollar rose 0.2% to $0.6985 AUD=D4.

Sterling, however, underperformed after data showed Britain’s economy was recovering more slowly than forecast.

Gross domestic product rose by 1.8% in May after falling by a record 20.8% in April, well below forecasts in a Reuters poll.

The pound last traded at $1.2571 GBP=D4.

The yen was little moved at 107.27 yen per dollar JPY=, off two-week high of 106.635 ahead of the Bank of Japan’s policy announcement expected later in the day.

The central bank is expected to keep monetary policy steady.

The Canadian dollar bounced back from a two-week low, changing hands at C$1.3600 per U.S. dollar CAD=D4, despite the prospect of travel restrictions between Canada and the United States being extended.

The Canadian central bank is expected to leave rates on hold at a policy announcement on Wednesday, with investors likely to focus on the bank’s outlook for the economy and potential guidance on its bond-buying program.

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