The Euro to US Dollar (EUR/USD) exchange rate fell on Friday as economists remained concerned over the Greek crisis and turned their attention to a key meeting in Brussels aimed at resolving the crisis.
EUR/USD Exchange Rate hit a session low of 1.130
On Thursday, the Germans rejected Greek proposals for a six-month extension to its current bailout programme. The announcement shocked the markets and sent the Euro falling sharply against most of its major peers. The decision by the Germans has increased the pressure on the two sides to reach an accord before the end of the month when Greece is widely expected to run out of money.
The proposal put forward by the Greeks offered a major concession as it said that Athens would be willing to remain under the supervision of the much-hated Troika of the European Commission, European Central Bank and International Monetary Fund.
The move by the Germans now means that either Greece surrenders and gives into its creditor’s demands, including keeping austerity measures or that it takes the other extreme measure of calling Germany’s bluff and threatens an exit from the Eurozone. If Greece does back down then Greek Prime Minister Alexis Tsipris will have to explain to his people why he was backing out on the policies that he won the election with.
Further losses for the Euro were restrained however as economic data out of the single currency bloc showed that the Eurozone’s preliminary composite Purchasing Managers Index (PMI) rose to a reading of 53.5 this month, up from the 52.6 figure seen in the preceding month and beat economist forecasts for a figure of 53.0.
Optimism that a deal will be reached at Friday’s meeting was also preventing the currency from falling sharply.
‘The reason that the Euro is not lower is that a lot of people still have this sanguine view that there will be an agreement because they have to reach one. At the moment the market reaction is too sanguine,’ said Adam Myers, European head of currency strategy at Credit Agricole.
Euro group finance ministers, led by President Jeroen Dijsselbloem, will meet in Brussels at 3pm (2pm UK time) to decide whether to accept the bailout extension plans put forward by Greece on Thursday. If no deal is reached then we can expect the Euro to fall further against the US Dollar and other major peers.