The Euro to Pound Sterling (EUR/GBP) exchange rate gave up earlier gains and went onto the retreat as market attention focused upon geo-political events such as the Greek crisis and the escalating conflict in the Middle East.
On Wednesday, Greece failed to secure a quick cash payment from the euro zone rescue fund to help stave off potential bankruptcy next month.
Athens had appealed for the European Financial Stability Facility to return €1.2 billion it said it had overpaid when it transferred bonds intended for bank recapitalization this month. If new reform measures are rejected by the nation’s creditors next week then fears will rise that Greece will be forced out of the Eurozone. Athens is expected to run out of money by April 8.
The Euro to Pound (EUR/GBP) exchange rate was trading in a tight range on Thursday as German data supported the single currency and UK retail sales data bolstered Sterling.
The Euro to Pound Sterling (EUR/GBP) exchange rate was trading in the region of 0.7366
The Euro made further gains earlier in the session as a report released by the market research group GFK showed that sentiment among German consumers surged to its best level in over 13 years, adding to signs that the Eurozone’s largest economy will strengthen over the coming weeks.
The sentiment indicator climbed to 10.0 for April, a rise from the 9.7 for March and beat economist forecasts for a figure of 9.8. GFK said that German consumers are growing increasingly confident thanks to low interest rates and the start of the European Central Bank’s €1.1 trillion quantitative easing programme.
Increasing optimism that a deal will be reached between Greece and its European creditors also lent support to the Euro. Athens said that it is confident that it can reach a deal on its economic reform programme early next week.
‘I believe that at the beginning of next week we will have an agreement on the packet of reforms the Greek government is proposing, and on the funding of the country,’ said Greek economy minister George Stathakis in an interview with Antenna TV.
If a deal is not reached then Greece is expected to run out of cash as early as April 9.
The GFK warned that sentiment amongst German consumers and the wider German economy could be weakened if Greece does default and leave the Eurozone.
‘If a Grexit, where Greece renounces the Euro and subsequently leaves the Eurozone, were in fact to materialise, the German economy could suffer a severe setback as a result,’ said GFK analyst Rolf Buerkl.
UK Retail Sales Support Pound Sterling (GBP) Exchange Rate
Further gains for the Euro against the Pound were restrained as British retail sales data beat economist forecasts. According to the Office for National Statistics (ONS), retail sales increased by 0.7% on a monthly basis and by 5.7% on an annual basis. Economists had been forecasting for a monthly rise of 0.4% and an annual rise of 4.7%.
‘If you wanted a demonstration that low food and energy prices are good for consumer spending, then this is it. People are clearly not deferring their spending plans amid deflation speculation they are spending the windfall. This is good news for growth,’ said an economist from Scotiabank.
The EUR/GBP exchange will likely experience movement on Friday as market attention turns to the latest UK GfK consumer confidence and Italian retail sales data.