EUR/USD rally may pause on US fiscal wrangling
- Broad-based US dollar weakness powers EUR/USD to an 18-month high of 1.1547 in Asia.
- Politicians in Washington tussle over next round of fiscal spending.
- The US fiscal impasse may dent risk sentiment and allow recovery in the US dollar.
Concerns that the US Republicans and Democrats are struggling to reach a consensus on the next round of the fiscal stimulus could weaken investor's risk appetite and put a haven bid under the US dollar, stalling the rally in EUR/USD.
US fiscal stimulus elusive
On Tuesday, Republicans and Democrats failed to overcome their differences on how much to spend on the next round of coronavirus fiscal package.
Democrats have passed a $3 trillion package in the House, while the Republican plan totals about $1 trillion, according to Associated Press. Meanwhile, House Speaker Nancy Pelosi said on Tuesday that the $1 trillion stimulus package proposed by the Republicans is not sufficient.
The impasse could put brakes on the equity market rally and yield a broad-based bounce in the safe-haven US dollar. The S&P 500, Wall Street's equity index, jumped to the highest level since February on Tuesday after the European Union approved the landmark fiscal deal and investors eyed US fiscal stimulus. The dollar index, which tracked the value of the greenback, fell to a 4.5-month low of 95.05.
Apart from the Intermarket factors, the pair may take cues from the US Existing Home Sales data for June, scheduled for release at 14:00 GMT and ECB's De Guindos Speech at 15:00 GMT.
The pair is currently trading at 1.1540, representing 0.11% gain on the day, having hit a high of 1.1547 early Wednesday. That was the highest level since January 2019.
Technical levels