The U.S. dollar fell to a two-month low against the euro on Thursday as the common currency continued to bask in the glow of the recently announced 750 billion-euro ($828.90 billion)coronavirus recovery fund amid improved risk appetite, leading investors to favor riskier assets.
The euro was 0.57% higher against the greenback at 1.1066, its third straight session of gains. The single currency has gained 1.6% over the past three sessions.
The EU executive unveiled a plan on Wednesday to support economies hammered by the pandemic, hoping to end months of squabbling over how to fund a recovery.
The euro's price action continues to be driven by global risk sentiment, even as market participants remain deeply skeptical that the EU recovery fund proposal will navigate the bureaucracy unscathed, said Simon Harvey, FX analyst at Monex Europe.
"We expect EURUSD volatility to remain well supported in the coming months," Harvey said.
Overnight implied volatility gauges inched up to hit a one-month high above 8%, suggesting investors were prepared for unexpected moves in the common currency.
"The Commission's plan is decent, but the leaders' meeting on 18-19 June will be key to determine whether there is the political willingness to move forward with it," Nicola Mai, lead sovereign credit research analyst in Europe at PIMCO, told the Reuters Global Markets Forum.
(GRAPHIC: Euro implied vol rises - https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmogjkvr/Euro%20implied%20vol%20rises.png)
The dollar, which usually draws safe-haven flows in times of economic uncertainty, found little support on Thursday after the Labor Department reported another 2.1 million people filed for unemployment benefits in the week ended May 23, down 323,000 from the prior week.
"It's still an extremely large number, but if the number of people continuing to file for unemployment benefits is decreasing then this should be viewed as a positive for the economy," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
The U.S. Dollar Currency Index <=USD>, which measures the greenback's strength against six other major currencies, was down 0.37% at 98.546, its weakest in nearly two months.
The pound recovered partially from the previous session's sharp drop against the dollar after Wednesday's reports that Brexit talks are at an impasse.
(Reporting by Saqib Iqbal Ahmed; additional reporting by Yoruk Bahceli in London and Aaron Saldanha and Lisa Mattackal in Bengaluru; Editing by Will Dunham and Tom Brown)
