Euro rises from 22-month low on EU bond issuance plans announced

A shop cash register is seen with sterling and euro currency in the cash register in the border town of Pettigo, Ireland October 14, 2016. REUTERS/Clodagh Kilcoyne

NEW YORK, March 8 (Reuters) – The euro rallied on Tuesday from its lowest level in 22 months against the U.S. dollar hit in the previous session, buoyed by expectations that the euro zone will increase fiscal spending to help offset the economic effects of the Russian-Ukrainian agreement. conflict, which pushed up the prices of energy and other raw materials.

Europe’s single currency, which was hardest hit in the foreign exchange market by the financial impact of geopolitical turmoil, also rose against other currencies such as the yen, Swiss franc and pound sterling.

“We saw a lot of headlines, the biggest of which was about the issuance of supranational bonds in the Eurozone, and therefore the likelihood of increased fiscal spending in that region, which is why we saw the euro-dollar react the way it does,” said Simon Harvey, senior foreign exchange analyst at Monex Europe in London.

Bloomberg News reported on Tuesday that the European Union plans to jointly issue bonds on a potentially massive scale this week to fund energy and defense spending.

Also on Tuesday, international crude oil benchmark Brent fell from Monday’s 14-year high to just under $140 a barrel, helping to boost euro sentiment. Brent was still up 6.5% on Tuesday to $131.11, however.

The euro regained ground after five sessions of decline against the dollar. It was up more than a cent from a low of $1.0806 on Monday, its lowest since March 2020 when the COVID-19 pandemic gripped Europe.

The single currency was last up 0.3% at $1.0890.

The euro briefly traded at par with the Swiss franc on Monday for the first time in seven years. It rose 0.8% on Tuesday to 1.012 francs.

Traders expect choppy markets over the next few months, with euro/dollar volatility gauges at their highest since the market chaos of March 2020

Traders are also eagerly awaiting the European Central Bank’s policy meeting on Thursday, with the prospect of stagflation prompting economists to suggest policymakers could delay rate hikes until the end of the year. Read more

As the euro gained, the dollar index, which measures the greenback against a basket of six global peers, held steady at just below 99.15.

That said, the safe-haven dollar remains a sought-after asset despite Tuesday’s slight pullback. Since the invasion of Russia on February 24, the dollar has gained around 3.3% as the crisis has intensified.

The demand for US dollars was also evident in the currency swap market. The cost of raising US dollar funds in the euro swap market was 17 basis points in favor of the greenback. That figure, however, was below last week’s level when it hit around 40 basis points, the highest since March 2020.

Yet the numbers suggest there is still a shortage of dollars in the funding markets.

Along with the commodities rally, the war and ensuing Western sanctions crushed Russian assets, with the ruble falling to a record low 160 to the dollar in erratic offshore trading on Monday. The ruble, however, strengthened on Tuesday by 2.6% against the greenback, which fell to 131.5. Read more

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Currency rates at 11:13 a.m. (4:13 p.m. GMT)

Reporting by John McCrank and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Iain Withers in London and Tom Westbrook in Singapore; Editing by Ed Osmond, Chizu Nomiyama and Jonathan Oatis

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