FOREX-Euro hovers near 4-month peak as EU leaders tackle "mission impossible"

* Euro eyes outcome of marathon EU summit meeting
* Investors hopeful of eventual deal on recovery fund
* Risk sentiment upheld by hopes of another U.S. fiscal
package
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, July 20 (Reuters) - The euro hovered near four-month
highs against the dollar on Monday, with investors holding out
hope that European leaders will break a deadlock and hammer out
an economic rescue deal in their marathon summit talks.
The euro changed hands at $1.1415 EUR= , down 0.1% but
still not far from a four-month high of $1.1452 touched on
Wednesday.
EU leaders are at an impasse over a proposed 750 billion
euro ($858.30 billion) recovery fund, which is supposed to be
raised on behalf of them all on capital markets by the EU's
executive European Commission. That would be a historic step towards greater fiscal
integration for the union, but a group of "frugal" wealthy north
European states were pushing for a smaller fund and seeking to
limit how payouts are split between grants and repayable loans.
A source said 350 billion euros on grants was the maximum
acceptable for the camp of thrifty northerners, compared with
400 billion seen as the bare minimum by many others, including
Germany and France. "Given that they can narrow down their differences to just
50 billion (euros), markets are somewhat still hopeful of a
compromise agreement, though the risk of the deal being called
off totally remains," said Christopher Wong, FX analyst at
Maybank in Singapore.
As European Council President Charles Michel urged leaders
to achieve "mission impossible", diplomats said it was possible
that they would abandon the summit and try again for an
agreement next month.
"If they do come to an agreement, we should see a further
rally in the euro," said Yujiro Goto, chief currency strategist
at Nomura Securities.
But many market players also believe the euro will be
supported even if the deal is not reached this time, as long as
there remains the prospect of a deal on the stimulus.
"I don't know what to expect from the summit. But even if
there is no agreement, the impact will be limited given the euro
appears to have a fairly strong momentum these days," said Yukio
Ishizuki, senior strategist at Daiwa Securities.
The dollar index USD= rose 0.2% to 96.157, as the U.S.
currency gained, as it often does since the pandemic, on a
retreat in U.S. stock futures.
But its advance was kept in check as investor risk appetite
continues to be strong, underpinned by bets of more stimulus not
just from Europe but also the United States.
A battle in the U.S. Congress over a new coronavirus-aid
bill began late last week as Republicans and Democrats pushed
for their own agenda. The Republicans want the upcoming coronavirus aid bill to
cost no more than $1 trillion while leading Democrats have
pledged to fight for much more - in the range of the $3 trillion
bill.
"We see more political pressure on the Republicans to
compromise on Democratic objectives because Republicans are
trailing badly in polls...Senate Republicans are not in a
position to hold back stimulus," wrote Steven Englander, head of
global FX strategy at Standard Chartered Bank New York branch in
a report.
Expectations of more government spending have offset worries
about rising coronavirus cases in the United States as well as
fears over deteriorating U.S.-China relations.
The British pound fell 0.3% to $1.2526 GBP=D4 while the
Australian dollar shed 0.15% to $0.6983 AUD=D4 .
The Japanese yen JPY= eased 0.3% to 107.34 per dollar
JPY= .
It showed no reaction to Japan's trade data that showed
exports in June plunged 26% from a year earlier, worse than
expected. The offshore Chinese yuan held firm at 6.9931 per dollar
CNH= , only a tad below last week's four-month peak of 6.9806.
($1 = 0.8738 euros)