LONDON (Reuters) – The euro was set for a fifth consecutive day of gains on Thursday as optimism about a closer fiscal union in Europe remained high among investors as dire economic data failed to change sentiment amid U.S.-China tensions.

The bloc’s currency gradually pared early losses against the dollar to briefly reach a three-week high of $1.10 while the cost of betting against the euro downside versus the dollar in options markets also fell further to new mid-March lows.

France and Germany proposed a 500-billion-euro ($543 billion) recovery fund on Monday to offer grants to regions and sectors hit hardest by the coronavirus pandemic, raising hopes that European policymakers were taking more decisive steps to tackle the economic damage.

The news lifted the euro from the $1.08 levels where it has been languishing for the last two months and pushed it towards $1.10, though the single currency remains more than 4% away from the 2020 highs of $1.15 levels tested in early March.

“The Ascension holiday has thinned liquidity and with euro/dollar already back below 1.10 investors will be awaiting confirmation of any breach of that levels over the next few sessions”, said Jane Foley, a senior strategist at Rabobank.

The latest economic data again showed the devastating impact of the coronavirus on the euro zone economy but did not weigh on the currency.

Having crashed to what was by far its lowest reading in the survey’s nearly 22-year history last month, IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a gauge of economic health, recovered to 30.5 from April’s 13.6.

“The big picture is that the index is consistent with economic activity in the region remaining very depressed even as lockdown measures are being gradually lifted,” said Jessica Hinds at Capital Economics.

While the business slump in France and Germany eased to some extent, the data was nevertheless less favourable than expected. British PMI data showed the economy flattened out a bit this month from April’s nosedive.

The pound, which remains under pressure as weak inflation drives speculation the Bank of England may cut interest rates below zero, pared some losses after the PMI data was released.

Sterling GBP=D3 was down 0.03% at $1.2233.

“Some improvement in the UK figures has bolstered the pound,” said Chris Beauchamp, Chief Market Analyst at IG.

With risk appetite broadly on the back foot, the U.S. dollar fell 0.12% to 99.06 =USD against a basket of its rivals while U.S. stock futures ESc1 were trading in the red as China-U.S. trade tensions swirled in the background.

Diplomatic relations between the world’s two biggest economies have soured in the past few weeks, with U.S. President Donald Trump attacking China’s handling of the coronavirus outbreak.

The latest salvo came when Trump took to Twitter late on Wednesday to accuse China of a “massive disinformation campaign” seeking to damage his re-election chances, “so they can continue to rip-off the United States”.

The dollar was slightly lower, edging down 0.16% against the yuan in onshore trade CNY= to 7.1001.

(Graphic: FX positions, here)

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