FOREX-Euro gains on EU common fund proposal; dollar slips

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee
LONDON, May 20 (Reuters) - The euro edged higher on
Wednesday as a Franco-German proposal for a common fund that
could move Europe closer to a fiscal union underpinned demand
for the common currency, while some risk aversion in currency
markets also boosted the Swiss franc.
The euro inched up 0.18% to $1.0945 EUR=EBS , near a
two-week peak of $1.09755 reached on Tuesday. Breaking that
could open the way for a test of its May 1 high of $1.1019.
But the moves were tiny and well within recent ranges due to
the presence of large option expiries around current market
levels.
"It is a sign that major players are getting serious about
pushing the limits toward what we think will inevitably be
needed: region-wide fiscal spending to offset the costs of the
crisis," John Velis, an FX strategist at BNY Mellon said,
referring to the Franco-German proposal.
France and Germany proposed on Monday a 500 billion euro
($543 billion) Recovery Fund to offer grants to regions and
sectors hit hardest by the coronavirus pandemic and to allow
borrowing by the European Commission on behalf of the whole EU.
While the scale of the proposed fund is relatively small
compared to the size of some of the larger European economies,
the proposal has reduced some of the selling pressure on the
euro by hedge funds seen in recent weeks.
The euro's gains pushed the dollar onto the back foot, with
the greenback holding near a three-week low of 99.225 hit in the
previous session =USD .
Broader currency market volatility fell to its lowest level
in more than two months as investors waited for the outcome of
the Federal Reserve's policy minutes from the last meeting
.DBCVIX .
Elsewhere, New Zealand central bank chief Adrian Orr
backtracked a little from the possibility of negative rates – a
prospect he had flagged just days before – lending support to
the kiwi dollar NZD=D3 .
But a distinct tone of risk aversion was evident in markets,
with the Swiss franc firming against the U.S. dollar CHF=EBS
and the euro EURCHF=EBS .