By Gertrude Chavez-Dreyfuss
NEW YORK, July 20 (Reuters) - The euro climbed to its highest in more than four months against the U.S. dollar on Monday on hopes that the European Union would agree on a recovery fund for economies in the region hit by the COVID-19 pandemic.
The fund is expected to be around 750 billion euros ($857.93 billion), of which 390 billion euros could be offered as grants.
European Union leaders said they were cautiously optimistic that agreement on a massive stimulus plan for their coronavirus-blighted economies was within reach, though tensions among them remained high after days of squabbling.
"We can't help but notice how bullish the street is when it comes to euro/dollar forecasts, and so we have to wonder if the eventual confirmed deal headlines prompt a 'buy the rumor/sell the fact' type of market reaction," said Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto.
Positive news about a potential COVID-19 vaccine also added to overall market optimism, lifting currencies that thrive in times of increased risk appetite, such as the Australian and New Zealand dollars.
An experimental coronavirus vaccine being developed by AstraZeneca and Oxford university was safe and produced an immune response in early-stage clinical trials, data showed on Monday, keeping alive the hope it could be in use by the end of the year.
In midday trading, the euro was last up 0.1% at $1.1442, after earlier hitting a more than four-month high of $1.1467 EUR=EBS.
Analysts said the smaller the amount of grants from the EU fund, the more the euro would fall.
If EU leaders agree on a recovery fund, that would boost confidence in the euro regardless of the numbers in the deal, said Mike Bell,global marketstrategist at J.P. Morgan Asset Management.
The U.S. dollar index USD=fell 0.1% to 95.863after sliding to a six-week low hit earlier in the session. Its gains, though, remain capped by expectations of more stimulus from Europe and from the United States.
U.S. President Donald Trump signed off on an effort to seek an additional $1 trillion in coronavirus economic relief, Treasury Secretary Steve Mnuchin said on Monday, as Republicans laid out their initial proposal for talks with Democrats.
That said, the U.S. Congress is bracing for a battle on the proposed stimulus bill that could boost safe-haven bids for the dollar.
The dollar rose 0.2% versus the yen to 107.25 JPY=EBS and was up 0.1% against the Swiss franc to 0.9396 franc CHF=EBS.
The Australian and New Zealand dollars, however, gained against the greenback to US$0.7004 AUD=D3 and US$0.6562 NZD=D3.
Currency bid prices at 12:33PM (1633 GMT)
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Euro jumps to 4-month highhttps://tmsnrt.rs/3fN2M7r
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis and Dan Grebler)
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