The Euro to Pound Sterling (EUR/GBP) exchange rate advanced strongly following the release of worse than forecast UK economic data and as the German Bundesbank said that it expects the Eurozone’s largest economy to continue to grow strongly in the first and second quarters of 2015.
The Euro to Pound Sterling (EUR/GBP) exchange rate strengthened to a session high of 0.7352
Sterling fell against the Euro and other major peers after the Confederation of British Industry reported that its index of industrial order expectations fell to zero this month from a reading of 10 in February. Economists had been forecasting for the index to slip to 9 in March.
Earlier ,the Euro to Pound Sterling (EUR/GBP) exchange rate advanced to a 3-week high on Monday as investors grew increasingly worried over the uncertain outcome of the UK’s May 7 general election and a possible British exit from the European Union.
With the outcome of the UK’s May 7 general election uncertain, investors are turning away from the Pound and looking towards safer assets such as the US Dollar.
The Confederation of British Industry (CBI) is warning that the UK economy could be weakened if the vote results in a power vacuum. With no clear winner expected a period of negotiation between the political groups would be required to form either a coalition government or a minority government, which has cut a deal for support from other parties.
‘Whether we have a majority, minority or coalition government, we ask those involved to ensure that the period of post-election uncertainty is kept to a minimum. We cannot afford a power vacuum that delays urgent policy decisions and unsettles potential investors, so any new cabinet must get down to business as soon as possible,’ said John Cridland, director general of the CBI.
Also putting pressure on the Pound was the media’s spin on a report published by the think tank Open Europe.
The media decided to focus on the negative aspect of the report by running headlines such as ‘Brexit could cost economy £560 billion a year’ in reality however the report went onto say that the UK could prosper outside of the EU.
‘Our estimates of the impact of Brexit range between the UK being 2.2% of GDP worse off in 2030 if it leaves and reverts into protectionism; to the UK being 1.6% GDP better off in 2030 if it leaves and pursues economic liberalism,’ the open Europe report actually said.
Decisive Week for Greece
Sentiment towards the Euro remains under pressure as investors continue to cast a wary eye on events in Athens.
Greece has until the end of the week to produce new economic reform measures that are acceptable to the nation’s creditors. If those plans are rejected then Greece will run out of money by the end of the month, an event that could see the nation leave the Eurozone.
Greek Prime Minister Alexis Tsipras is set to meet with German Chancellor Angela Merkel later in the day to discuss the situation.
There was some positive news for the Eurozone however as a vote held in Spain showed that the anti-Euro political group, Podemos, performed poorly in regional elections, suggesting that support for the party may be faltering.