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EUR USD Strengthened as Greece Agrees to More Austerity

The Euro US Dollar (EUR USD) exchange rate trended higher this morning as the Greek government agreed to adopt further Austerity measures in order to unlock the next tranche of bailout funds.

The measures, which are deeply unpopular with the Greek populace, include further tax rises and pension cuts, which Athens’s creditors placed as a requirement for the release of further funding.

The decision was met by violent protests in the capital, with angry protesters gathering outside parliament and throwing petrol bombs and firecrackers at the police, who responded with tear gas.

However the news was welcomed by EUR investors who are optimistic that Greece’s creditors will now agree to provide the nation with its next round of financial aid helping the nation to avoid defaulting on a large loan repayment due in July.

Markets will now turn to the issue of debt relief, with the Greek government hopeful that by meeting its commitments to austerity that European finance ministers will agree to some measure of debt relief, which would also allow the International Monetary Fund (IMF) to participate in the bailout.

Prime Minister Alexi Tsipras echoed this sentiment as he said following the decision;

‘It’s their [the lenders] turn to fulfil their commitments, just like we did. We deserve and we expect from Monday’s eurogroup a decision regulating debt relief which will correspond to the sacrifices of the Greek people.’   

However there is a still a long road to recovery for the beleaguered nation with recent growth figures showing that Greece’s economy had once again entered a recession.

Meanwhile the US Dollar was able to strengthen overnight on Thursday as markets grew more optimistic that the Federal Reserve will raise interest rates next month.

After market bets fell to around 60% in recent days following a number of political scandals which rocked the Whitehouse, CME Group’s FedWatch tool reports that the odds of a rate hike next month have leapt back to almost 80% following a hawkish speech by Cleveland Fed President Loretta Mester.

Mester repeated calls for her colleagues to accelerate the pace of monetary tightening as she suggested that the US economy could be in danger of overheating, with labour markets nearing full employment and inflation closing in on the Fed’s 2% target.

‘I think that it’s important for the FOMC to remain very vigilant against falling behind, especially given the low level of interest rates and the large size of our balance sheet.’

While Mester is not on the Federal Open Market Committee (FOMC) this year, markets are hopeful that her words could prompt other members to push for an additional rate hike this year.

Looking ahead the EUR USD exchange rate may rise again later this afternoon as analysts forecast that the latest Eurozone Consumer Confidence survey will rise from -3.6 to -3 in May thanks to the recent uptick in economic data from the bloc.

Meanwhile the US Dollar could rally later today if St. Louis Federal Reserve Bank President James Bullard echoes Mester calls for further rate hikes this year.

Current Interbank Exchange Rates

At the time of writing the EUR USD exchange rate was trending around 1.1153 and the USD EUR exchange rate was trending around 0.8964.