FOREX-Euro jumps to 4-month peak on hints of progress in debt talks

* Dutch, Austrian leaders say talks made progress
* Investors grow optimistic about EU 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 jumped to a four-month
high against the dollar on Monday, boosted by European leaders
saying progress was being made in talks to take on debt jointly
to help their economies.
The euro gained 0.2% to $1.1452 EUR= , having risen to as
high as $1.14555, its loftiest level since March, as EU leaders
appeared within a whisker of breaking an impasse over a proposed
750 billion euro ($858.30 billion) recovery fund. With the marathon talks adjourned until 1600 CET (1400 GMT)
on Monday, Austrian Chancellor Sebestian Kurz and Dutch Prime
Minister Mark Rutte, leaders from two of the so-called "frugal
four", said progress was being made.
Rutte said talks had been close to failing, but the chairman
was now working on a new EU compromise proposal.
"The EU appears to be about to overcome a major hurdle. If
they come to an agreement, the euro could look for a new trading
range, possibly something like $1.14-$1.16, as opposed to the
$1.11-$1.14 range it has been stuck for a while," said Kyosuke
Suzuki, director of forex at Societe Generale.
The 750 billion euros proposed for the fund are to be raised
on behalf of EU countries on capital markets by the EU's
executive European Commission
While that would be a historic step towards greater fiscal
integration for the union, a group of "frugal" wealthy north
European states have been reluctant, pushing for a smaller fund
and seeking to limit how payouts are split between grants and
repayable loans.
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.
The dollar index USD= was flat at 95.948, with its advance
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 0.2% to $1.2541 GBP=D4 while the
Australian dollar shed 0.10% to $0.6987 AUD=D4 .
The Japanese yen JPY= eased 0.2% to 107.29 per dollar
JPY= .
It did not react to Japan's trade data showing exports in
June plunged 26% from a year earlier, worse than expected.
The offshore Chinese yuan held firm at 6.9853 per dollar
CNH= , only a tad below last week's four-month peak of 6.9806.
($1 = 0.8738 euros)