A better-than-expected German manufacturing PMI helped to boost the Euro, even after Eurozone finance ministers failed to approve the next tranche of Greek bailout funds.
As the IMF remains at odds with European lenders over the size of the budget surplus that Greece must run and the issue of debt relief the issue was left unresolved once again.
While this softened the appeal of the single currency somewhat overnight it was not enough to significantly dent the uptrend of the Euro Pound exchange rate.
For the time being the issue of Greece is still only a mild downside pressure on the Euro, although further volatility is likely as the major debt repayment deadline in July draws closer.
As Michael Every, Senior Asia-Pacific Strategist at Rabobank, noted:
‘The IMF seems to be the only one who has looked at the track-record of both austerity and economic forecasting (for once) and realised it might be better to err on the safe side – which then requires more debt relief, something that is unpalatable within Europe’s current gold standard monetary system. Expect the negotiation can to be kicked to June, when all can then agree to extend and pretend that 2019 onwards holds nothing but milk and honey for Greece.’
Even so, signs from the wider Eurozone remain generally positive, with both the French and Germany economies showing solid growth in May.
The mood towards the single currency could sour, though, if European Central Bank (ECB) President Mario Draghi proves more dovish in comments on Wednesday.
With Draghi likely to talk down the prospect of monetary tightening at this juncture the EUR GBP exchange rate could come under renewed selling pressure.
Confidence in the Pound weakened sharply at the start of the week, weighed down by news that the Conservatives’ lead in the polls had dropped to just nine points.
This undermined markets’ assumption that Theresa May will be able to cruise to victory with a significantly increased majority, suggesting that the path towards Brexit remains far from smooth.
Forecasts point towards a weakening in April’s BBA loans for house purchase figure, which could indicate a further loss of momentum within the domestic housing market.
Volatility could also be in store for the EUR GBP exchange rate if the updated first quarter UK gross domestic product report proves discouraging.
While no major changes are likely further confirmation of the economy’s sharp slowdown at the start of the year looks set to weaken the appeal of the Pound.
Current EUR GBP Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending higher at 0.8668. Meanwhile, the Pound Euro exchange rate was slumped in the region of 1.1537.