* Euro heads for two-month high on stimulus proposals
* Offshore yuan stumbles to nine-month low
* Dollar weakens but mood in market turns cautious
* Graphic: World FX rates in 2019: http://tmsnrt.rs/2egbfVh
(Adds details, quotes, latest prices)
By Tommy Wilkes
LONDON, May 27 (Reuters) - The euro headed towards a
two-month high on Wednesday after the European Commission
proposed a coronavirus economic recovery package worth in total
1.85 trillion euros ($2.04 trillion).
The euro has struggled since falling in March, when
investors rushed for the safety of dollars. But analysts say the
recovery fund proposals, if they can win over EU members
sceptical of an earlier Franco-German plan, could push the euro
higher. Should the European Commission approve the new proposal, "it
would reduce the risk of a slump in peripheral Europe, notably
Italy, and increase the likelihood of a synchronized recovery
across the Continent," said Marshall Gittler, an investment
analyst at BDSwiss Group. "It would be positive for the euro."
The euro rose as high as $1.1031 EUR=EBS before falling to
$1.1017, still up 0.3%. The dollar, previously higher against a
basket of currencies was last down 0.2% at 98.811 =USD .
Worries about the U.S. response to China's proposed security
law for Hong Kong injected a more cautious tone into foreign
exchange markets.
Some investors are betting on a rapid resumption of economic
activity following the crippling coronavirus outbreak. Others
worry the threat of U.S. sanctions against China for its
treatment of Hong Kong could worsen risk sentiment again.
Renewed protests in Hong Kong added to the nervous mood.
"Yesterday's risk-on rally is already running out of steam.
That seems quite right, but not just because of the tensions
between the U.S. and China," said currencies analyst Thu Lan
Nguyen at Commerzbank.
Nguyen said the economic outlook remained uncertain as
countries re-open their economies, not least in predicting how
consumers will behave once they can shop and travel more freely.
The offshore yuan fell to its lowest against the dollar
since September of last year, during the U.S.-China trade
dispute.
The dollar gained 0.4% at 7.1766 yuan CNH=EBS , not far
from the offshore yuan's record low of 7.1975 in September.
Should the onshore yuan CNY=CFXS , which also eased towards
a nine-month low on Wednesday, fall below September's lows it
would be at its weakest since 2008.
U.S. President Donald Trump said on Tuesday the United
States would announce before the end of the week its response to
China's planned security bill for Hong Kong. The dollar rose against Japan's currency, last trading up
0.1% at 107.72 yen JPY=EBS .
Sterling GBP=D3 dipped while the Australian dollar
AUD=D3 briefly hit a two-and-a-half month high of $0.6680.
($1 = 0.9078 euros)
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U.S. dollar vs offshore yuan https://tmsnrt.rs/2M7srKJ
EU 'frugals' formally oppose Merkel-Macron plan for coronavirus
grants slumps to 9-mth low on Sino-U.S. tensions, corporate dollar
demand to announce strong Hong Kong response this week
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