EUR/USD catapulted to 18-month high on EU fund optimism

The euro skyrocketed on Wednesday, climbing to a new multi-month high thanks to optimism over the EU’s new fiscal stimulus package.

Meanwhile, having slumped yesterday, the pound appears to be mostly rangebound so far this morning, with GBP/EUR subdued at €1.0997 and GBP/USD stable at $1.2744. GBP/CAD is flat at C$1.7061, while GBP/AUD and GBP/NZD are holding steady at AU$1.7809 and NZ$1.9071, respectively.

Coming up, will we see coronavirus optimism continue to strengthen the risk tone today or will renewed US-China tensions begin to sour sentiment?

What’s been happening?

The euro easily came out on top yesterday, with the single currency shedding Tuesday’s profit taking driven losses amidst optimism over the EU’s new coronavirus recovery fund.

EUR investors hailed the accord by EU leaders on hopes that the fund will facilitate a speedy recovery in the Eurozone.

This upbeat sentiment was shared by European Central Bank (ECB) President Christine Lagarde, who gave the fund a thumbs up despite some misgivings over the balance between grants and loans.

Optimism over the EU fund as well as positive coronavirus vaccine developments resulted in bullish trading conditions on Wednesday, dampening the appeal of the safe-haven US dollar.

Demand for the ‘Greenback’ was further undermined by concerns over US coronavirus statistics and speculation the next round of US fiscal stimulus could face roadblocks due to disagreements between Republicans and Democrats.

The pound, meanwhile, was forced to relinquish some of its recent gains during yesterday’s session amid renewed Brexit anxiety.

This came on the back of a report from the Daily Telegraph that the UK is close to abandoning Brexit trade talks with the EU.

What’s coming up?

Looking ahead, it is likely we will see coronavirus optimism continue to drive markets today, further limiting demand for the US dollar.

On top of this, the ‘Greenback’ is likely to face pressure from the latest US initial jobless claims on the expectations that claims will have shown limited signs of falling off last week.

In the Eurozone, the publication of the bloc’s latest consumer confidence figures may extend the euro’s rally on forecasts that household sentiment will have continued to improve this month.

Finally, it is likely the pound will struggle for direction today as lingering Brexit concerns likely offset any improvement in the Confederation of British Industry's (CBI) latest industrial order figures.