EUR/GBP Sentiment Up with Greek Repayment to European Central Bank
With approval from the Bundestag and the final agreement signed off by the European Stability Mechanism (ESM) the first 13 billion Euro disbursement is being implemented this morning. As Greece has now officially met its European Central Bank (ECB) deadline the common currency is climbing against most of the majors. In consequence the EUR/GBP exchange rate has regained much of its lost ground, currently trending at 0.7097.
Although yesterday’s UK Consumer Price Index drove the EUR/GBP exchange rate to a weekly low, the prospect of a final agreement on the bailout of Greece and wavering trader optimism have allowed the pairing to regain ground this morning.
EUR/GBP Exchange Rate Brought Down by Improved UK CPI Data
The common currency (EUR) started the week relatively strongly after Friday’s meeting of Eurozone finance ministers saw the Greek bailout deal progress to the votes of various European parliaments. Latvia and Lithuania gave approval to the proposal on Monday with Spain, Austria and Estonia following suit the next day. As the Hellenic nation edges closer to a final agreement and the first disbursement of funds the outlook of the Euro is clearly improved, the threat of a European Central Bank (ECB) default seemingly all but passed.
Yesterday was a good day for the Pound (GBP), however, as the UK Consumer Price Index came in better than expected, posting an increase to 0.1% instead of remaining at 0%. As the primary measure of domestic inflation, the CPI is considered one of the principle influences on the interest rate decisions of the Monetary Policy Committee (MPC). Consequently this positive showing led to renewed speculation that the Bank of England (BoE) might raise rates sooner rather than later, even though pundits remain generally convinced that a hike will not come before the end of the year. As a result the EUR/GBP exchange rate was quick to slump to a new weekly low of 0.7028.
German Approval Pending for Greek Deal, Pound Optimism Wanes Today
However, the most significant hurdle facing this third bailout of Greece remains the Bundestag. This morning German MPs are meeting for their own vote on the deal, with a number still expressing clear reticence over both the terms and Greece’s ability to stick to them. Finance Minister Wolfgang Schäuble has ultimately come out in favour of the bailout, in spite of earlier reservations, and it does appear that a majority will approve.
Sterling has begun to lose steam today as the large initial boost of optimism over the inflation data has faded somewhat. The reservations of some analysts and suggestions that this rise might be an anomaly in the current climate have weighed down on the currency, pushing it off the bullish run of yesterday. This has allowed the EUR/GBP pairing to regain some ground, peaking at 0.7061 this morning.
EUR/GBP Exchange Rate Forecast: UK Retail Sales May Revitalise Pound
Tomorrow’s Greek ECB repayment deadline remains a key moment for the single currency, which is likely to trigger a degree of positive movement should the bailout clear in time to avoid a default. As the greater economic impact of the deal will remain to be seen for some time, and early elections remain a possibility in the wake of Prime Minister Alexis Tsipras losing hold of a majority, any boost this may inspire will probably be of a fairly limited strength.
UK Retail Sales data, meanwhile, may restore the declining investor confidence in the Pound if the figures prove to be similarly supportive to the prospect of an interest rate hike. However, any signs of economic weakness will undercut Sterling’s gains with the strong potential to move the EUR/GBP exchange rate higher.
Current EUR, GBP Exchange Rates
At time of writing the Euro to Pound Sterling (EUR/GBP) exchange rate is experiencing a slight uptrend at 0.7048, with the Pound Sterling to Euro (GBP/EUR) pairing in the range of 1.4187.