July 20, 2020 / 12:32 AM / 21 days ago

FOREX-Euro hovers near 4-month peak as market looks to EU summit

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

By Hideyuki Sano

TOKYO, July 20 (Reuters) - The euro hovered near four-month highs against the dollar on Monday as investors held on to hopes that European leaders would break a deadlock and hammer out an economic rescue deal as their marathon summit reached a record length.

The euro changed hands at $1.1439, just below a four-month high of $1.1452 touched on Wednesday.

EU leaders were at an impasse over a proposed 750 billion euro ($858.30 billion) recovery fund, which is supposed to be raised on behalf of them all on capital markets by the EU’s executive European Commission.

That would be a historic step towards greater fiscal integration for the union, but a group of “frugal” wealthy north European states were pushing for a smaller fund and seeking to limit how payouts are split between grants and repayable loans.

A source said 350 billion euros on grants was the maximum acceptable for the camp of thrifty northerners, compared to 400 billion seen as the bare minimum by many others, including Germany and France.

Diplomats said it was possible that they would abandon the summit and try again for an agreement next month.

But market players expect them to reach a deal in the future even if they fail to do so this time.

“I don’t know what to expect from the summit. But even if there is no agreement, the impact will be limited given the euro appears to have a fairly strong momentum these days,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

The dollar is broadly weak as investors maintained strong risk appetite, betting on more stimulus not just from Europe but also the United States.

The dollar index stood at 95.949, near three-month low of 95.716 touched last month.

A battle in the U.S. Congress over a new coronavirus-aid bill began late last week as Republicans and Democrats pushed for their own agenda.

The Republicans want the upcoming coronavirus aid bill to cost no more than $1 trillion while leading Democrats have pledged to fight for much more - in the range of the $3 trillion bill.

“We see more political pressure on the Republicans to compromise on Democratic objectives because Republicans are trailing badly in polls... Senate Republicans are not in a position to hold back stimulus,” wrote Steven Englander, head of global FX strategy at Standard Chartered Bank New York branch in a report.

Expectations of more government spending have offset worries about rising coronavirus cases in the United States as well as fears over deteriorating U.S.-China relations.

The Japanese yen was little changed at 107.07 per dollar.

It showed no reaction to Japan’s trade data that showed exports plunged 26% from a year earlier in June, worse than expected.

Elsewhere, the British pound traded flat at $1.2570 while the Australian dollar changed hands at $0.6999.

The offshore Chinese yuan traded at 6.9889 per dollar , a tad below last week’s four-month peak of 6.9806.

$1 = 0.8738 euros Reporting by Hideyuki Sano; Editing by Kim Coghill

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