The Pound Sterling to Euro (GBP/EUR) exchange rate was testing the 1.40 level on Monday as market attention focused on key talks between Greece and its creditors in the European Union. Also supporting the UK currency was last week’s surprise general election win for David Cameron’s Conservatives.
The Pound Sterling to Euro (GBP/EUR) Exchange Rate Hit A Session High Of 1.3976
With little in the way of market moving economic data out of the Eurozone all eyes were focused on the afternoons Eurogroup meeting. Greece is running out of cash, and is likely to run out completely by the end of this month. Tomorrow the nation must repay €750 million to the International Monetary Fund (IMF) a payment that should be honoured according to the Greek government.
Bank of England (BoE) Holds Interest Rates
As the session progressed, the Pound saw little impact from the announcement by the Bank of England that policy makers voted in favour of leaving interest rates unchanged at the record low level of 0.5% and maintain the monthly quantitative easing programme at £375 billion. Investor attention will now look ahead to Wednesday’s BoE inflation forecast.
‘We wouldn’t be surprised to see the BoE nudge up their inflation forecasts. Policy makers may emphasise a little more forcibly that the prospect of interest rises is getting closer,’ said James Knightley from ING Bank.
The UK economy has expanded for nine consecutive quarters but inflation remains well below the bank’s target for 2%. With oil prices starting to improve, the bank is expected to announce a rise in the nations predicted inflation rate.
‘Our hunch is that the market is a bit too relaxed about it all at the moment. The bank was warning in February about a risk of an inflation overshoot and we do not see that going away. The underlying trend is still for a recovery,’ said Victoria Clarke from Investec Securitites.
The Euro weakened as the session progressed as German Finance Minister Wolfgang Schauble suggested that Greece should hold a referendum if it would mean that the Syriza led Greek government would have an easier time pushing through economic reform measures. The news spooked investors who believe that Athens does not have enough time to hold such a vote.
The US Dollar to Euro (USD/EUR) Exchange Rate Hit A Session High Of 0.8979
The US Dollar to Euro exchange rate moved higher on Monday as the US currency continued to find support from last Fridays employment data.
The report showed that the US economy created an extra 223,000 jobs in April and showed that the overall unemployment rate fell to 5.4%.
Unemployment in the world’s largest economy is now at its lowest level since May 2008.
Also supporting the US currency was demand for safer assets as concerns mount over the strength of the Chinese economy and a possible renewal in the conflict in Ukraine.