Euro climbs back above $1.08, volatility spikes

The euro rose on Wednesday as improving risk sentiment in global markets paused the dollar’s rally, providing relief to the single currency, which had earlier fallen to three-year lows after a survey showed weakening confidence in Germany. The euro has fallen 3.6% to the dollar this year, as Europe’s economic data has deteriorated while that of the United States has mostly improved.

On Tuesday, Germany’s ZEW research institute said in its monthly survey that investors’ mood had deteriorated far more than expected in February, on worries coronavirus would curtail world trade. “I’ve been talking for some time about the risk of a further downturn in euro/dollar from a fundamental point of view, based largely on the widening difference in expected growth between the two regions,” said Marshall Gittler, head of investment research at BDSwiss. “There’s also a technical argument to be made for a lower euro: the single currency is approaching a major long-term support level.”

China posted the lowest daily increase in new infections since Jan. 29, considered an indication containment efforts were working. A Bloomberg report, citing sources, that China is considering cash injections or mergers to bail out airlines hit by the virus also supported risk appetite. The safe-haven Japanese yen JPY=, which tends to benefit from uncertainty, eased against the dollar to hit its lowest level in nearly a month. It last traded 0.2% lower at 110.08 per dollar. The yield curve between U.S. three-month bills and 10-year notes inverted overnight, a bearish economic signal. Investors are looking to the minutes from the Federal Reserve’s January meeting, due at 1900 GMT, for insight into the Fed’s thinking about virus risks.