FOREX-Euro set for a fifth consecutive day of gains as optimism builds

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Julien Ponthus
LONDON, May 21 (Reuters) - The euro was set for a fifth
consecutive day of gains on Thursday as optimism about a closer
fiscal union in Europe remained high among investors as dire
economic data failed to change sentiment amid U.S.-China
tensions.
The bloc's currency gradually pared early losses against the
dollar to briefly reach a three-week high of $1.10 while the
cost of betting against the euro downside versus the dollar in
options markets also fell further to new mid-March lows.

France and Germany proposed a 500-billion-euro ($543
billion) recovery fund on Monday to offer grants to regions and
sectors hit hardest by the coronavirus pandemic, raising hopes
that European policymakers were taking more decisive steps to
tackle the economic damage. The news lifted the euro from the $1.08 levels where it has
been languishing for the last two months and pushed it towards
$1.10, though the single currency remains more than 4% away from
the 2020 highs of $1.15 levels tested in early March.
"The Ascension holiday has thinned liquidity and with
euro/dollar already back below 1.10 investors will be awaiting
confirmation of any breach of that levels over the next few
sessions", said Jane Foley, a senior strategist at Rabobank.
The latest economic data again showed the devastating impact
of the coronavirus on the euro zone economy but did not weigh on
the currency.
Having crashed to what was by far its lowest reading in the
survey's nearly 22-year history last month, IHS Markit's Flash
Composite Purchasing Managers' Index, seen as a gauge of
economic health, recovered to 30.5 from April's 13.6.
"The big picture is that the index is consistent with
economic activity in the region remaining very depressed even as
lockdown measures are being gradually lifted," said Jessica
Hinds at Capital Economics.
While the business slump in France and Germany eased to some
extent, the data was nevertheless less favourable than expected.
British PMI data showed the economy flattened out a bit this
month from April's nosedive.
The pound, which remains under pressure as weak inflation
drives speculation the Bank of England may cut interest rates
below zero, pared some losses after the PMI data was released.
Sterling GBP=D3 was down 0.03% at $1.2233.
"Some improvement in the UK figures has bolstered the
pound," said Chris Beauchamp, Chief Market Analyst at IG.
With risk appetite broadly on the back foot, the U.S. dollar
fell 0.12% to 99.06 =USD against a basket of its rivals while
U.S. stock futures ESc1 were trading in the red as China-U.S.
trade tensions swirled in the background.
Diplomatic relations between the world's two biggest
economies have soured in the past few weeks, with U.S. President
Donald Trump attacking China's handling of the coronavirus
outbreak.
The latest salvo came when Trump took to Twitter late on
Wednesday to accuse China of a "massive disinformation campaign"
seeking to damage his re-election chances, "so they can continue
to rip-off the United States".
The dollar was slightly lower, edging down 0.16% against the
yuan in onshore trade CNY= to 7.1001.

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