The Euro to Pound Sterling (EUR/GBP) exchange rate weakened on Monday to trade in the region of 0.7216 as worries remained over the Greek situation.
The Euro to Pound Sterling Exchange Rate Hit a Session Low of 0.7201
Tensions between Athens and its European creditors increased at the weekend after a German newspaper revealed that a number of unnamed European officials are so annoyed at Greece, that they accused it of acting liking a ‘taxi driver’ as it keeps asking for cash instead of delivering acceptable reform measures.
The report published by German newspaper, Frankfurter Allgemeine Sonntagszaitung (FAS) claimed that Eurozone officials were shocked by the lack of economic reform plans and the lack of progress made by the Syriza party.
Relations between Athens and other European nations have deteriorated markedly over the past few months. Germany/Greek relations in particular have suffered, as Greece blames the Eurozone’s largest economy for imposing harsh austerity measures in exchange for bailout funds.
Greece has just days to present a convincing economic reform plan to Eurozone finance ministers. If the plans do meet expectations then bailout funds worth €7.2 billion will not be granted, and could lead to Greece being forced to leave the Eurozone.
In addition, putting pressure on the Euro was the European Central Bank’s stimulus programme driving Eurozone interest rates lower in the Eurozone. Investors have been selling off the single currency as the ECB’s bond buying programme sends Eurozone bond yields sliding into negative territory in many countries.
Euro to US Dollar (EUR/USD) Exchange Rate Forecast to Reach Parity by Year’s End
Against the US Dollar, the Euro continued to weaken as sentiment towards the ‘Greenback’ continued to be supported by expectations that the Federal Reserve will choose to hike interest rates in the summer.
The US Dollar received a boost last week after the presidents of the Richmond and New York Federal Reserve’s said that interest rates should be hiked as early as the summer. The diverging trends of the Fed and ECB are one of the driving factors of the US Dollars strength against the single currency.
Economists are also raising their bets that the Euro will fall to parity against the US Dollar before the end of the year.
‘Interest rate expectations against the Eurozone are a key determinant of the exchange rate, and explain a lot of the Dollar’s rise since last summer. Looking ahead, we think that growth in the euro-zone may still pick up a bit as the positive effects of the ECB’s quantitative easing programme, particularly the weaker exchange rate, feed through. In fact, we have revised up our forecast for GDP growth this year in the euro-zone from 1.0% to 1.5%. But we expect growth to remain stronger in the US. Moreover, regardless of the timing of the initial hike, US interest rates are likely to increase at a faster pace over the next couple of years than market participants currently anticipate. On this basis, we expect the Dollar will end the year at parity with the Euro,’ said Kevin Ferriter from Capital Economics.
The Euro could make more losses on Tuesday if the latest Eurozone industrial production disappoints.