The euro also gained versus other currencies such as the yen, Swiss franc and sterling
The euro on Tuesday climbed from 22-month lows against the U.S. dollar hit the previous session, lifted in part by expectations that the euro zone will increase fiscal spending to help offset the economic effects of Russia’s invasion of Ukraine.
Investors were also hesitant to sell the euro ahead of a European Central Bank policy meeting on Thursday. The prospect of stagflation has prompted economists to suggest policymakers might delay rate hikes until late in the year.
Europe’s single currency, which has been pummelled since the start of the latest geopolitical turmoil, also gained versus other currencies such as the yen, Swiss franc and sterling.
Bloomberg News reported on Tuesday that the European Union plans as soon as this week to jointly issue bonds on a potentially massive scale to finance energy and defence spending.
Franziska Palmas, markets economist at Capital Economics, said that if confirmed the news would be positive for euro zone assets, but it would not be enough to sustain their recovery.
Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, believes the euro appears to have found a ‘tentative bottom,’ with some investors reluctant to test new lows ahead of the ECB meeting.
There is a risk that the ECB president may acknowledge euro weakness as among the headwinds facing the bloc’s economy. That’s been enough to offer the euro at least a momentary reprieve, Manimbo added.
The euro regained some ground after five sessions of declines versus the dollar. It was up more than a cent from a trough of $1.0806 on Monday, its lowest since March 2020 when the COVID-19 pandemic gripped Europe.
The single currency was last up 0.5% at $1.0906.
Traders are expecting choppy markets over the next few months, with euro/dollar volatility gauges at their highest since the market chaos of March 2020.
As the euro gained, the dollar index, which measures the greenback against a basket of six global peers, was flat to slightly lower at 99.15.