Euro Heads for High After European Commission News

Chris Lee

The euro surged ahead in the forex markets on Wednesday after the European Commission made a significant proposal about a bloc-wide aid package.

The latest proposed package, which is as a result of the coronavirus pandemic, came directly from the EC and is understood to be worth €1.85tn.

The development of such a package in recent weeks has taken place in a context of arguments over how it ought to be paid for.

While France and Germany have offered to set up a grants scheme, some other European member states have objected to this and requested a loan system instead.

There is a perception within Europe that poorer countries, such as Italy and Spain, want more aid to trickle down from the north.

Some have suggested that the arrival of a new system could lead to increased fiscal union between the key players.

However, as traders at the broker OctaFX noted, this latest aid proposal appeared to be good news for the single currency.

It was spotted up at $1.1031 against the US dollar at one stage – and while it later went down to $1.1017, this performance still represented a rise of more than a quarter of a percentage point.

Elsewhere around the world, the offshore Chinese yuan – which is the iteration of the Chinese currency that is traded globally against others, rather than the more controlled domestic version – was down.

It was seen at its worst position since September 2019 in its pair against the greenback.

The dollar found itself up by two-fifths of a percentage point in this pair.

The US dollar index – which is a basket of currencies designed to inform traders how the greenback is faring in relation to other currencies – was up at first but later down a fifth of a percentage point.

This reflected the fluctuations in perspectives that many traders have experienced recently.

Uncertainty has ramped up in recent days thanks to the ongoing rift between China and the US over China’s treatment of Hong Kong – a development that has led to more dollar investment due to its relative safety and prospect of being liquidated into cash.

However, this has also been contradicted by a boost in risk sentiment elsewhere thanks to the arrival of what appears to be a tentative end to the pandemic lockdown in many countries.

Against the Japanese yen, meanwhile, the dollar was up – though only by a small amount.

It was spotted at 107.72 at one stage over the course of the day.

Historically, the yen was considered to be one of the ‘safe haven’ currencies due to Japan’s status as a global creditor.

However, recent events appear to have cast some doubt on that, with many now considering the dollar to be the ultimate safety destination.

The pound, meanwhile, was also down.

In a further sign of fluctuations and volatility in the market, the Australian dollar managed to find itself back up – despite the ongoing problems faced by the Chinese economy.

Usually, the Aussie dollar is linked quite strongly to the fortunes of China due to its trading relationship, but today the currency hit its highest point in over two months at one stage.

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