Forex - Dollar Drops; Euro, Sterling Gain on Summit Agreement

By Peter Nurse

Investing.com - The dollar has been under pressure Tuesday, with the euro and commodity currencies benefiting from the news that European Union leaders have reached an agreement over a recovery fund for the region and amid renewed hopes for a Covid-19 vaccine.

 At 2:45 AM ET (0645 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 95.718, having earlier traded at a more than four-month low of 95.687.

 Elsewhere, USD/JPY was up 0.1% at 107.31, while EUR/USD was flat at 1.1444, having earlier hit a four-month high of 1.1469.

 In the commodity currencies, NZD/USD inched higher and AUD/USD added 0.4% to 0.7039.

After more than four days of haggling, European Union leaders reached a deal on a massive 750 billion euro stimulus plan for their coronavirus-hit economies, with 390 billion euros as non-repayable grants - down from 500 billion originally proposed - and the rest in repayable loans.

“Investors are likely to scrutinize the package to look for the finer details such as the resulting distribution and the share of loans versus grants among member states,” said analysts at Danske Bank, in a research note.

“Although an agreement has been reached, we do not expect any major moves as the price action yesterday suggested that a lot has already been priced in.”

Adding to the weakness for safe havens like the dollar was encouraging data from trials of three potential COVID-19 vaccines, including a closely-watched candidate from Oxford University.

This comes as the number of coronavirus infections world wide climbed above 14.7 million, with over 609,000 deaths, according to the latest data from Johns Hopkins University.

Another currency showing strength Tuesday has been sterling, helped by the positive news from the EU summit as well as ahead of fresh Brexit talks beginning later Tuesday.

The aim of reaching an agreement between Britain and the EU on future ties by October is ambitious but achievable, German Foreign Minister Heiko Maas said on Tuesday.

“There is sizeable room for more stress to be built into sterling in the coming weeks and months as EU-UK negotiations enter a crucial phase – but we remain positive a trade deal will eventually be agreed on,” said analysts at ING, in a research note.

At 2:45 AM, GBP/USD traded 0.2% higher at 1.2687, just off the one month high of 1.2693 hit earlier, while EUR/GBP dropped 0.2% at 0.9018, close to the week low of 0.9015.