Newsflash: GBP/EUR Advances to 1.41 on Greek Default, Manufacturing PMI Ahead
As European markets woke up to the news that Greece failed to repay the International Monetary Fund (IMF) in time, the Pound Sterling to Euro exchange rate climbed to 1.41.
The pairing could extend gains in the hours ahead if the UK’s Manufacturing PMI for June meets or exceeds forecasts.
The measure printed at 52.0 in May.
The Pound Sterling to Euro (GBP/EUR) exchange rate could gain during the European session as Greece officially failed to meet its debt obligation to the IMF – making it the first developed nation to be in arrears with the institution.
Greece now has the unenviable distinction of being a member of a club including Somalia, Sudan and Zimbabwe.
Greece Fails to Reach a Deal with Creditors and Defaults on IMF Payment, Further Pound Sterling to Euro (GBP/EUR) Exchange Rate Volatility Forecast
This evening marked a pivotal moment for Greece, and for modern European history.
After five months of fruitless negotiations with lenders, the Greek bailout expired today and the nation accordingly entered arrears by missing its 1.6 billion Euro repayment to the International Monetary Fund (IMF).
Although Eurozone ministers earlier refused to extend the current Greek bailout, they have implied that they intend to talk over the nation’s 11th hour request for a new aid programme.
This is the BBC’s assessment of the situation; ‘The sky will not fall in now the deadline for Greece to repay to the IMF has passed, but the tension will rise. When a payment to the IMF is missed and managing director Christine Lagarde informs her board, the Eurozone would have the right under the loan agreements to demand immediate repayment of more than €180bn they have already lent Greece, together with interest. Failure to repay the IMF comes under a list of “events of default” set out in the legal documents. IMF officials say Ms Lagarde intends to inform the board promptly if Greece doesn’t pay on time.’
Euro to Pound Sterling (EUR/GBP), US Dollar (EUR/USD) Exchange Rates to Bear the Brunt of Fitch Downgrading Greek Credit Rating
Before Greece missed its payment to the IMF, top ratings agency Fitch cut the Hellenic nation’s credit rating from CCC to CC amid concerns that the odds of defaults on private creditor repayments are high.
Fitch expressed surprise that an accord had not been reached before this point.
The agency stated; ‘The breakdown of the negotiations between the Greek government and its creditors has significantly increased the risk that Greece will not be able to honour its debt obligations in the coming months, including bonds held by the private sector. We now view a default on government debt held by private creditors as probable. Recent events have taken us beyond our previous base case that a deal would be struck before the expiry of the programme.’
It also said of Sunday’s potentially Europe-changing referendum; ‘Although early polls suggest a ‘Yes’ vote is the more likely outcome, the risk of a ‘No’ vote is significant. In our view, a ‘No’ vote would dramatically increase the risk of a Greek exit from the Eurozone. Such an exit would probably be disorderly as the current government is unlikely to co-operate with the European authorities in such an event.’
Although the Euro showed remarkable resilience in the immediate aftermath of the downgrade and missed IMF payment, common currency volatility is likely to occur in the run up to Sunday’s referendum.
Both the Euro to Pound Sterling (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates could dive if the Greek populace vote against accepting the austerity measures put forward by lenders.
Pound Sterling to Euro Currency Forecast: GBP/EUR Could Return to Best Exchange Rate of 2015 if UK PMIs Impress or Greek Referendum Results in No Victory and Grexit
The volatility recently witnessed in the Pound Sterling to Euro (GBP/EUR) exchange rate isn’t over by a long chalk and the next couple of days could see the currency pair experience serious shifts.
This week’s UK Manufacturing, Services and Construction PMIs could bolster the Pound against the Euro if they advance further beyond the 50 mark separating growth from contraction in June.
Today’s manufacturing gauge is expected to show a modest improvement.
While the Eurozone is also scheduled to publish manufacturing data today, the final figures are unlikely to have much of an impact on Euro trading given Greek concerns.
If it goes ahead, Sunday’s Greek referendum will be a game changer for the Pound Sterling to Euro (GBP/EUR) exchange rate.
A yes vote would give the nation a chance to reconsider its political standing and reintegrate itself with the rest of the Eurozone.
However, a no vote would make a ‘Grexit’ a near certainty and could push the Euro to multi-year lows against peers like the Pound and US Dollar.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.4094, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5711 and the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7089