BoE Interest Rate Comments Send the Pound Sterling to Euro Exchange Rate Lower
With the clock ticking before Athens has to present the International Monetary Fund (IMF) with a 1.6 billion Euro repayment, the Pound Sterling to Euro (GBP/EUR) exchange rate managed to claw back some of the losses sustained in reaction to the release of surprisingly dovish comments on the subject of UK interest rate hikes.
The Pound declined against a number of peers, and fell back to the 1.39 level against the Euro, after the Bank of England’s chief economist implied that interest rates could be cut before any upward revisions are made.
However, unless some kind of miraculous accord between Greece and its creditors is reached before today’s 11pm repayment deadline, the GBP/EUR exchange rate could return to trending around Monday’s highs in the days ahead.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.4064
The Pound Sterling to Euro (GBP/EUR) could rally beyond 1.44 this week if the threat of a Grexit continues to grow.
Greece on Verge of Default and Grexit, Pound Sterling to Euro (GBP/EUR) Exchange Rate Hits Best Rate Since 2008 Today on Latest News
During Monday’s European session the Pound Sterling to Euro (GBP/EUR) exchange rate pushed to a high of over 1.43 – not only the strongest rate of 2015 but the best rate for eight years.
The Pound failed to sustain this level after the UK’s mortgage approvals number fell short and investors speculated on the possibility of Greece finally striking a deal with its creditors after Sunday’s game-changing referendum.
The pairing could climb all the way to 1.44 in the days ahead however depending on how the situation unfolds.
Euro (EUR) Exchange Rate Pressured Lower against US Dollar (USD), Pound Sterling (GBP) by Greece, German Inflation and Eurozone Confidence
While the Euro did move away from the lows struck against peers like the Pound (EUR/GBP) and US Dollar (EUR/USD) earlier in the day, the common currency came under additional pressure as economic reports for the Eurozone and its largest economy failed to impress.
Firstly the Eurozone’s Economic Confidence, Business Climate, Industrial and Services Confidence indexes revealed declining or stagnant sentiment in June (unsurprising given the recent uncertainty) and then Germany’s Consumer Price Index showed an unexpected move into deflation for the Eurozone’s largest economy.
Rather than coming in at 0.2% month-on-month in June, as predicted, German inflation printed at -0.1%.
Capital Economics analyst Jennifer McKoewn noted; ‘June’s sharp fall in German HICP inflation confirmed that underlying price pressures have remained very subdued even in the Eurozone’s strongest economy. […] While weakness in Germany will be partly offset by the rise in Spanish inflation… we now see Eurozone inflation falling to about Zero in June.’
Greek Default/Referendum, German Employment, Eurozone CPI and UK GDP Forecast to Impact Pound Sterling to Euro (GBP/EUR) Exchange Rate – Could We See the Drachma in 2015?
Further extensive volatility in the Pound Sterling to Euro (GBP/EUR) exchange rate can be expected this week given the geopolitical developments and domestic ecostats still on the cards.
Although some industry experts have implied that Greece won’t technically default if it fails to repay the International Monetary Fund (IMF) tomorrow (but instead would be in arrears) the situation would still place the nation under a lot of pressure ahead of Sunday’s referendum.
The question which will be posed to voters on the 5th was released today and is as follows; ‘Should the agreement plan submitted by the European Commission, European Central Bank and the International Monetary Fund to the June 25 eurogroup and consisting of two parts, which form their single proposal, be accepted? The first document is titled “Reforms for the completion of the Current Program and Beyond” and the second “Preliminary Debt sustainability Analysis’.
A Yes vote might reopen the lines of communication between Greece and its creditors and help the nation broker a deal at last, but a No vote is likely to spell the end of the nation’s time in the Eurozone and could herald a return of the Drachma.
As it stands no one is entirely sure what would happen to Greece if it were expelled from the currency bloc, or what currency it will adopt (though retaining the Euro, taking on the US Dollar and reinstating the Drachma have all been suggested).
If Greece were to reintroduce the Drachma in 2015 it could change the face of the foreign currency market quite significantly.
The Pound Sterling to Euro (GBP/EUR) exchange rate could also fluctuate today in response to the publication of several potentially influential economic reports, including the UK’s final first quarter growth data, Eurozone/German unemployment numbers and the Eurozone’s Consumer Price Index.
If the rate of UK first quarter expansion is positively revised, as some industry experts anticipate being the case, the GBP/EUR exchange rate could be pushed back towards the highs achieved on Monday.