FOREX-Dollar weak as euro rises on Franco-German proposal for recovery fund

* Dollar softer after successful COVID-19 vaccine trial
* German investor morale improves -ZEW

(New throughout, updates prices, market activity, comments to
U.S. market open; new byline, changes dateline; previous LONDON)
By Saqib Iqbal Ahmed
NEW YORK, May 19 (Reuters) - The U.S. dollar edged lower
against the euro on Tuesday as the common currency added to
Monday's gains following news of a Franco-German proposal for a
fund that would offer grants to European Union regions and
sectors hit hardest by the coronavirus pandemic.
Encouraging results from the trial of a vaccine for COVID-19
reduced demand for safe havens and the greenback rose to a near
one-month high against the Japanese yen. JPY=EBS .
Germany and France, whose agreements usually pave the way
for broader EU deals, proposed that the European Commission
borrow 500 billion euros ($550 billion) on behalf of the whole
EU. The Commission is expected to outline their proposal before
a European summit scheduled for May 27.
The euro was 0.25% higher against the greenback at $1.0942,
on pace for a two-day gain of about 1 percent.
"The Franco-German proposal represents a material step
forward towards harnessing joint fiscal capacity to provide
sustained fiscal stimulus to support the economic recovery,"
said Lee Hardman, currency analyst at MUFG.
The common currency was also supported by a survey showing
German investor sentiment improved much more than expected in
May as concerns eased about the impact of the coronavirus
pandemic on Europe's largest economy. The greenback found little support from data showing U.S.
homebuilding dropped by the most on record in April.
The U.S. currency, which draws safe-haven flows when risk
appetite falls, has assumed a softer tone as investors took
heart from encouraging early-stage data for a potential
coronavirus vaccine. "The USD is a safe haven just like the CHF or JPY and it was
safe havens under pressure from yesterday morning straight
through to now," said Brad Bechtel, global head of FX at
Jefferies.
Governments scaling back lockdown restrictions has also
helped investors grow optimistic that economies could soon
return to normal.
The Australian AUD=D3 and New Zealand dollars NZD=D3
hung onto hefty gains on Tuesday amid progress on reopening the
global economy and optimism about an eventual vaccine.
Against the Japanese yen, which tends to draw investors
during times of geopolitical or financial stress as Japan is the
world's biggest creditor nation, the dollar rose 0.55% to a near
one-month high.
The pound GBP=D3 rose 0.49% against the dollar, a small
recovery relative to its recent seven-week lows, as sterling is
held down by Brexit risks and speculation about negative rates.
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Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
U.S. dollar gains on safe-haven yen as risk sentiment improves
https://tmsnrt.rs/3fYwcjD
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