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EUR GBP Falls; Greek Bailout Deal Fails to Entice Investors as Syria Concerns Weigh

Weakness in UK data allowed the EUR GBP exchange rate to make strong advances, even as investors sold out of the Euro in favour of other currencies.

Comments from Eurogroup President Jeroen Dijsselbloem that talks with Greece had made ‘significant progress’ after Alexis Tsipras’ government agreed to legislate new reforms were having little impact.

Uncertainty remained regarding exactly when the next €7 billion tranche of bailout funds would be paid; a concern considering Greece has debt repayments due in July.

However, it was the actions of the US in Syria that was dictating the mood on the markets yesterday.

US warships launched cruise missiles at a Syrian airbase believed to be responsible for a supposed chemical weapons attack on the civilian population in a rebel-held area, in which 70 people were killed.

Nato has stood by the US, with top civilian Jens Stoltenberg releasing a statement reading; ‘Any use of chemical weapons is unacceptable, cannot go unanswered, and those responsible must be held accountable. Nato considers the use of chemical weapons as a threat to international peace and security. Nato supports all international efforts aimed at achieving peace and a political solution in Syria.

However, the action has created tension between the US and Russia, as the latter backs the Syrian government against the rebel forces.

Fears that the two world powers could be moving closer to direct conflict has prompted investors to move into safer assets, including gold, the Swiss Franc and the Japanese Yen.

This has left little appetite for the Euro, with only the current weakness of the Pound allowing the Euro to record an anomalous rise.

Appetite for Sterling has vanished after the day’s UK data all disappointed forecasts.

Industrial production, predicted to grow 0.2% on the month and 3.7% on the year, disappointed by contracting -0.7% in February and only expanding 2.8% year-on-year.

Manufacturing production declined -0.1% on the month instead of growing the forecast 0.3%, while year-on-year production picked up to 3.3% instead of to 3.9%.

Construction output surprised with a -1.7% decline on the month and sluggish growth of 0.5% on the year, compared to forecasts of a slip from 2.3% to 1.9%.

Further adding to Sterling woes, the trade deficit widened to -£3.66 billion and January’s shortfall was revised to -£2.98 billion; around -£1 billion more than initially thought.

Rounding off the disappointment was the National Institute of Economic and Social Research (NIESR) GDP estimate for the three months to March, which printed at 0.5% instead of 0.6% as anticipated.

The data further supports the expectation that the UK economy slowed in the first quarter of the year.

After a quiet day on Monday, Tuesday’s UK consumer price index figures for March could add to the gloom hanging over Sterling if inflation continues to rise higher.

Eurozone data picks up on Tuesday as well, with the important German and Eurozone ZEW survey results for April published.

Signs of improving business sentiment will help investor confidence, although the common currency could struggle if issues surrounding when the Greek government will receive its next tranche of bailout funds persist.

Towards the end of Friday’s trade session, the EUR GBP exchange rate was trading around 0.85 and the GBP EUR exchange rate was trending around 1.16.