* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, May 20 (Reuters) - The euro extended gains on
Wednesday, climbing towards a two-week high, as a Franco-German
proposal for a common fund that could move Europe closer to a
fiscal union boosted demand for the currency.
But the euro's gains were hardly broad based with the single
currency giving up ground against the perceived safe-haven Swiss
franc as the size of the proposed fund is seen as being
relatively small compared to the size of some of some European
economies.
The euro edged up 0.2% to $1.0960 EUR=EBS , near to a
two-week peak of $1.09755 reached on Tuesday. Breaking that
level could open the way for a test of its May 1 high of
$1.1019.
"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 have proposed 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.
But the proposal may not be enough to push the euro above
the $1.10 level against the U.S. dollar as developments in
Germany suggested some push-back against more policy easing.
Earlier this month, a German constitutional court ordered
the European Central Bank to justify its bond-buying scheme -
the central plank in the region's response to the economic
crisis.
These issues helped to pushed the Swiss franc higher against
the euro and the U.S. dollar despite heavy intervention by the
Swiss central bank, suggesting that investors remain broadly
cautious.
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 its 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 .
The euro's modest gains pushed the U.S. dollar on to the
back foot, with the U.S. currency holding near a three-week low
of 99.225 hit in the previous session =USD .
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EUR positions https://tmsnrt.rs/2XdNpwH
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