The Euro (EUR) exchange rate weakened against both the Pound Sterling (GBP) and US Dollar (USD) on Wednesday, as fears over a possible Greek default weakened sentiment towards the single currency. Mixed data out of the Eurozone and Germany also weighed.
The Euro to Pound Sterling (EUR/GBP) Exchange Rate Touched a Session Low Of 0.7144
The Euro weakened to its lowest level in two weeks against the US Dollar and declined against the Pound as worries over a Greek default heightened. Athens is running out of time to reach an agreement with its international creditors over economic reform measures that they say must be enforced before they grant bailout cash worth €7.2 billion. The Greek government has to repay €305 million to the International Monetary Fund (IMF) before June 5; if it does not then it will default. Such an event could lead to Greece being forced out of the Eurozone.
‘Now is the moment that negotiations are coming to a head. Now is the moment of truth. There is no money for the foreign lenders when they have not given us any funds for a year. We don’t have it to make the payment and this is part of the discussion. The government will make sure that it has money to pay pensions and wages before servicing debt repayments to the IMF,’ said Greek parliamentary speaker Nikos Filis.
Also weakening the Euro were comments made by European Central Bank (ECB) policymaker Benoit Coeure that suggested that the ECB will increase its monetary stimulus programme over the next few weeks. Mr Coeure also raised concerns about the recent bout of volatility seen in the European bond markets.
Euro Set to Weaken Further
The ECB wants to weaken the Euro further in order to help stimulate the Eurozone economy and with comments like the ones made by Coeure it is likely to succeed.
‘If there is one thing that is evident from today’s early activity, it’s that the ECB is determined to see the Euro weaken,’ said Brenda Kelly, an economist from Capital Group.
The Pound Sterling advanced against several peers including the Euro after the latest Bank of England (BoE) policy meeting minutes came in hawkish. The minutes showed that policy makers expect that UK economic growth will accelerate this quarter. The group of nine policy makers voted unanimously to leave interest rates unchanged at 0.5%, but two were shown to have considered voting in favour of a rate rise.
The Euro to US Dollar (EUR/USD) Exchange Rate Softened To a Session Low of 1.1060
The US Dollar continued to find support from data released on Tuesday, which showed that US housing starts rose to the highest level in nearly seven-and-a-half years in April. Building permits also jumped higher. The data raised hopes that the US economy is on the verge of a rebound following a period of weakness.
The Euro was further softened by the release of data from Germany that showed that producer price inflation in the Eurozone’s largest economy fell by -1.5% on an annual basis. Further losses were restrained however as a separate report showed that the Eurozone’s construction sector rose by 0.8% on a month-on-month basis, an improvement on the preceding months decline of -1.6%.
The US Dollar will experience more movement late in the day due to the publication of the Federal Reserve’s policy meeting minutes for May.