The Euro to US Dollar (EUR/USD) exchange rate weakened on Monday due to growing concerns that Greece could be forced out of the Eurozone as no deal is likely to be reached between Athens and its creditors.
The Euro to US Dollar (EUR/USD) Exchange Rate Fell To a Session Low of 1.0712
‘The Euro has come back under pressure to start the week amid ominous comments about the festering crisis in Greece. ECB policymaker Christian Noyer said the country may not find collateral for loans and warned that its exit from the Eurozone would be traumatic for the region As well as the world economy at large,’ said currency expert Ilya Spivak.
As well as the ‘Grexit’ concerns the single currency came under pressure from the release of weaker than forecast data out of Germany and the wider Eurozone.
Producer Price inflation in the region’s largest economy fell for a 20th month in a row in March, adding to signs that the European Cesntral Bank’s €1 trillion quantitative easing programme has yet to inspire confidence in the currency bloc’s manufacturers.
According to German statistics office Destatis, producer prices fell by -1.7% on a year-on-year basis, down from the preceding months fall of -2.1% and was a worse figure than the -1.6% drop forecast by economists. On a month-on-month basis, prices rose by just 0.1%, disappointing expectations for a slight uptick of 0.2%.
Following on from the German data was a separate report released by Eurostat, which showed that construction activity in the Eurozone fell sharply in February. The drop indicates that despite the signs of an economic recovery, businesses and households in the Eurozone remain wary of making new investments.
Construction fell by -1.8% on a month-on-month basis and was down by -3.7% on an annual basis.
Time Running Out For Greece
Investors now believe that the chances of Greece reaching a deal with its creditors stand at just 10%.
‘There is a 45% chance that a last minute messy compromise allows the muddling-through to continue; a 10% chance that a meaningful policy breakthrough will be achieved, and a 45% chance that the outcome is a Graccident in which both the Greek government and its European partners lose control of the situation. Under this third scenario, a series of Greek payment defaults, bank runs and the imposition of capital controls would force Greece out of the single currency,’ said Mohamed El-Erain, chief economic advisor at Allianz.
The Euro could reclaim some ground on Tuesday if the latest ZEW Economic Sentiment Index shows signs of improvement.