Currencies

Euro dips from 4-month high vs dollar, but outlook well-supported

Euro banknotes with different values.
Jens Büttner | picture alliance via Getty Images

The euro slipped against the dollar on Monday, as investors booked profits on earlier gains that took it to a more than four-month high on hopes the European Union would agree on a recovery fund for economies in the region hit by the COVID-19 pandemic.

The fund is expected to be around 750 billion euros ($857.93 billion), of which 390 billion euros could be offered as grants.

EU leaders have made progress in Brussels after three days of talks, but they remain at odds over the composition of the recovery fund. The fund's backers initially proposed 500 billion euros of grants and 250 billion of loans.

Some countries objected to that much in grants. They saw 350 billion euros as the maximum, but showed signs of compromising.

"We can see some profit-taking in the euro," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto. "But I can still see it as well-supported on weakness as this deal is good for the European economy." The euro hit a high of $1.1467 and was last down 0.1% at $1.1412.

Analysts said the smaller the amount of grants, the more the euro would fall.

The EU summit was originally due to last two days. The fact that it is now continuing into a fourth day of negotiations is evidence that EU leaders are ready to do everything it takes to maintain unity in the euro zone, said Jane Foley, senior currency strategist at Rabobank in London If they agree on a recovery fund, that would boost confidence in the euro regardless of the numbers in the deal, said Mike Bell, global market strategist at J.P. Morgan Asset Management.

Elsewhere, the U.S. dollar index rose 0.1% to 96.002, recovering from a six-week low hit earlier in the session. Its gains, though, remain capped by expectations of more stimulus from Europe and from the United States.

That said, the U.S. Congress is bracing for a battle on the proposed stimulus bill, that could further boost safe-haven bids for the dollar.

U.S. Senate Democrats are prepared to block Republicans from moving forward on a partisan coronavirus aid bill, the chamber's top Democrat warned on Monday, as Republican leaders were expected to meet at the White House to discuss legislation.

The dollar rose 0.1% versus the yen to 107.14, and was up 0.1% as well against the Swiss franc to 0.9393 franc.