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Pound Extends Gains Against Euro on Greek Worries, GBP USD Exchange Rate Trends Narrowly

European Union news

Fears that the Eurozone could be moving towards a fresh crisis have helped to boost the Pound Euro exchange rate this week, even as the government’s Article 50 bill continued to progress through Parliament.

  • Pound benefitted from hawkish BoE policymaker comments – Suggestion that case for interest rate hike is building boosted confidence
  • Signs of widening rift between IMF and European creditors over Greece – Euro weighed down by prospect of fresh debt crisis
  • Narrowed trade deficit pointed towards stronger US economy – ‘Greenback’ trended higher in response
  • Lack of amendment to Article 50 bill could limit Pound demand – Signs of harder outlook on Brexit to dent GBP exchange rates

The appeal of the US Dollar, meanwhile, picked up in response to the rising odds of the Fed raising interest rates in the near future.

Pound Sterling Trended Higher on Hawkish BoE Comments

Comments from Bank of England (BoE) policymaker Kristin Forbes helped to give the Pound (GBP) a mid-week boost. As Forbes noted that the continued resilience of the UK economy could be enough to merit an increase in interest rates this encouraged investors to pile back into Sterling. While this ran significantly counter to the tone of Governor Mark Carney, and indeed the majority of the Monetary Policy Committee (MPC) as seen in February’s meeting minutes, GBP exchange rates nevertheless rallied strongly on the suggestion.

As BoE Deputy Governor Jon Cunliffe is due to speak on Wednesday afternoon the Pound may struggle to hold onto its rally for long, assuming that he takes a less hawkish view of monetary policy. With the underlying odds continuing to point towards the Bank maintaining its neutral policy outlook for longer the appeal of Sterling is likely to remain generally limited.

Volatility is also likely in response to the latest developments surrounding the government’s Article 50 bill, as analysts at TDS noted:

‘After passing its first reading in the House of Commons, the Brexit bill is now in the committee stage, where MPs have another chance to debate the bill and propose amendments (which are unlikely to pass). They then vote for a final time today before sending the bill to the House of Lords. This gets PM May one step closer to triggering Article 50 by her preferred date of 7 March.’

Greek Debt Concerns Shored up GBP EUR Exchange Rate

Worries over Greece have returned to the fore this week, weighing heavily on the outlook of the Euro (EUR). As the Hellenic nation has remained locked in an impasse with its creditors there have been signs of an increasing rift between members of the Eurogroup and the International Monetary Fund (IMF). The IMF’s latest assessment of the Greek economy labelled the country’s debt burden unsustainable and issued a fresh call for European lenders to grant some degree of debt relief. As Eurogroup President Jeroen Dijsselbloem dismissed the suggestion the Pound Euro (GBP EUR) exchange rate was naturally encouraged to trend higher.

Confidence in the single currency is likely to remain lacking this week as the latest raft of German trade data is forecast to show fresh weakness. Forecasts point towards a narrowing of the trade surplus, which is expected to have fallen from 22.6 billion to 20.5 billion in December. If there is found to have been a fresh contraction in exports the outlook of the Eurozone’s powerhouse economy could be diminished, boding ill for the Euro.

Narrowed Trade Deficit Boosted Odds of March Fed Rate Hike

As the December trade deficit was found to have narrowed further than forecast the US Dollar (USD) returned to an uptrend. This stronger showing helped to boost the odds of the Federal Reserve raising interest rates again in March, following the unexpectedly hawkish remarks of Philadelphia Fed President Patrick Harker. Even though recent political developments and upheaval caused by the US travel ban have dented the ‘Greenback’ this positive data nevertheless dragged on the Pound US Dollar (GBP USD) exchange rate.

The latest US jobless claims figures could dampen the mood towards the US Dollar, however, if unemployment is found to have increased on the week. While anything short of a serious downside surprise is unlikely to alter the outlook of the labour market a weaker result would still give policymakers some pause. Any fresh controversy stemming from the new US administration could also give the GBP USD exchange rate a boost in the near term.

Current Interbank GBP EUR, GBP USD Exchange Rates

At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending higher in the region of 1.17, while the Pound US Dollar (GBP USD) exchange rate was trending narrowly at 1.24.