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EUR/USD: euro dips to two-week lows ahead of EU COVID-19 meeting

EUR/USD fell back below $1.08 for the first time in two weeks, ahead of an all-important policy meeting where EU finance leaders will attempt to negotiate details of a COVID-19 funding package.

EUR/USD falls below $1.08 for first time in two weeks

EUR/USD held its ground during the Asian session on Thursday, after resisting another round of pressure in global markets.

After trading in a narrow range around $1.085, UK traders briefly pushed the euro above $1.088 before another round of US dollar strength prevailed. That saw the euro fall to session lows of $1.0802 – the lowest level in two weeks.

However, as has been the case all week, the euro didn’t buckle against recent support levels near the $1.08 mark.

That support level held throughout the Asian session on Thursday. But as UK traders stepped to the desk, the euro saw another bout of weakness to fall below $1.079 – its lowest level in two weeks.

It followed the release of purchasing managers index (PMI) data for France which was even worse than expected. German manufacturing PMI data also missed expectations, slumping to 34.4 against a forecast measure of 39 (anything below 50 signals an economic contraction).

Before that sell-off, a hint of weakness in the greenback had crept across currency markets, which saw the euro briefly climb back above $1.082 as the US dollar slipped to session lows.

The fall in the euro accompanied a broader risk-off tone, as stock futures across the major indices in the US, UK and Europe – which had traded positive in Asia – all lost momentum

All eyes turn to the European Union meeting

EUR/USD traded within a narrow range in Asia, ahead of a key political event with eurozone leaders scheduled to meet via video conference on Thursday.

Highlighting the agenda will be further debate around how to share financing duties for a combined COVID-19 rescue package – a matter on which EU leaders remain deeply divided.

The issue was left unresolved when eurozone finance ministers agreed to a €540 billion funding package earlier this month.

One compromise solution proposed by the European Commission (EC) is for member states to front extra capital, which would allow the EC to use the funds as collateral to raise debt finance at a cheaper rate.

The details of such a proposal are yet to be agreed to or approved. Failure to secure an agreement could raise further doubts about the capacity of the EU to manage its way through the crisis.

In that sense, member states have a strong incentive to come away from the meeting with at least some kind of solidarity or tentative plan, to avoid placing further pressure on European debt markets.

Benchmark ten-year bond yields in Italy – the eurozone’s third largest economy and one of its most indebted – rose above 2% for the first time in a month earlier this week.

Elsewhere for EUR/USD traders, March PMI data for manufacturing and services is scheduled to be released for the US.

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