Euro optimism wanes amid rising COVID cases

Investor confidence that the euro will continue to strengthen against the dollar is waning as Europe combats rising COVID-19 cases.

Net speculative positions by hedge funds that the euro will rise against the dollar are at a two-month low, according to data from the Commodity Futures Trading Commission. In recent weeks, new COVID-19 cases have climbed in Europe, overtaking the U.S. This has led governments to implement stricter containment measures that are likely to weigh on economic activity.

The number of net speculative contracts betting on the euro’s rise against the dollar was about 10,300 as of Oct. 13, according to data on Friday from the Commodity Futures Trading Commission.

While the consensus is still for the euro to rise, the level of positioning toward that has fallen from August highs of net 37,000 contracts.

Over the summer, investors began betting the euro would strengthen against the dollar after the European Union passed a recovery fund to provide grants and loans to member nations and new COVID-19 cases fell.

But an uptick in cases and new restrictions could heighten investor concerns that the 750 billion euros, equivalent to $1.2 billion, recovery fund won’t be enough should the rise in cases curtail the resumption of economic activity. Funds won’t be distributed until next year and could be delayed.

Fresh lockdown measures could also cause eurozone gross domestic product to slow. Florian Hense, an economist at Berenberg, revised his fourthquarter growth forecast to 1 per cent from 2.5 per cent due to the rising level of COVID-19 cases and restrictions.

The U.K. has introduced a three-tiered system of lockdown measures for England and moved London to the second-highest alert tier on Saturday. France has declared a state of emergency and set a nightly curfew for the Paris region and eight other metropolitan areas across the country. Last week, the Czech Republic shut schools, restaurants and bars through early November.