By Kate Duguid
NEW YORK, July 17 (Reuters) - The euro rose against the dollar to just under four-month highs on Friday,following the kick-off of a European Union summit that market participants hope will advance a recovery fund that would help lift the EU out of recession.
No outcome is expected at the summit until Friday eveningat the earliest, but an agreement or a collapse in the talks would have a major impact on the currency when trading resumes.
"The euro favored four-month highs on hopes that Europe's fiscal leaders would move toward agreement on a massive 750 billion-euro rescue fund. A positive outcome by the end of the EU summit Saturday could potentially be the euro's ticket to fresh highs for the year," said Joe Manimbo, senior market analyst at Western Union Business Solutions.
The euro could break through the technically significant $1.15 level - which hasn't been touched since February 2019 - if progress is made.
"The euro's outperformance already has it less than a penny away from a key threshold it last touched in February 2019. Conversely, a disappointing outcome that merely kicks the fiscal can down the road would risk an unwinding of recent euro gains."
Implications for the euro should the EU go ahead with its plan would be long-lasting, Marshall Gittler, head of investment research at BDSwiss, told his clients.
A deal "would make the euro more attractive as a reserve currency" by "establishing a central fiscal capacity that can respond to adverse shocks, which would make monetary union more stable", he said.
Many traders doubt the summit will end in an agreement and assume EU leaders will need to meet again to find a compromise. Officials said the summit could drag into Sunday if an agreement remains elusive. Luxembourg Prime Minister Xavier Bettel told Reuters he had brought an extra set of clothes just in case.
The pound is on track to be the worst-performing G10 currency this week, after weaker economic data raised concerns over the possibility the Bank of England will introduce negative interest rates.
For the week, the dollar was on course for gains against sterling GBP=, the yen JPY= and the Swiss franc CHF=. The dollar index =USD, which heavily weights the euro, was last 0.25% lower at 96.037.
(Reporting by Kate Duguid in New York and Julien Ponthus in London; Editing by Steve Orlofsky)
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