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Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast to Hold Gains on Greece Worries, ZEW Data Disappoints, GBP/USD Rallies

The Pound Sterling to Euro (GBP/EUR) exchange rate strengthened on Tuesday as fears over a Greek exit from the Eurozone continued, and  the latest ZEW sentiment data came in below economist forecasts.

The Pound Sterling to Euro (GBP/EUR) Exchange Rate Hit A Session High of 1.3944

Rising expectations that Greece will not reach a deal with its creditors continued to weigh and were exacerbated by rumours that the European Central Bank is considering cutting the amount of emergency liquidity assistance it gives to Greek banks.

“Reports this morning are suggesting that the ECB is looking into reducing its ELA for Greek banks, a move that would make an already dire situation for the Greek financial institutions much worse,” said Connor Campbell, analyst at Spreadex.

Resistance to aiding the nation’s struggling lenders is growing among the banks governing council, as they grow impatient over the lack of progress being made in negotiations between Athens and the Eurogroup.

Greece is expected to run out of money by May if no deal is reached.

ZEW Data Disappoints

The single currency came under more pressure as the session progressed after data released by the ZEW Institute showed that economic optimism in Germany declined for the first time since October last year. The sentiment index for the Eurozone’s largest economy fell 1.5 points to a reading of 53.3 points. Economists had been forecasting for a figure of 55.9.

‘The German economy is in good shape. A stable labour market and increasing wages are strengthening confidence and boosting consumption. However, the current weakness of the world economy is dampening export prospects and reducing the scope for further improvements of the economic situation in Germany,’ said ZEW President, Professor Clemens Fuest.

The Current Conditions Index improved to 70.2 this month from 55.1 in March, better than expectations for a rise to 56.0.

The sentiment index for the wider Eurozone also disappointed as it missed expectations. The economic sentiment index for the region came in at 64.8, below the 65.7 expected.

On the index, a level above 0.0 indicates optimism; a level below 0.0 indicates pessimism.

The Pound Sterling meanwhile was softer against the US Dollar and other peers as a lack of market moving domestic data meant that the currency was vulnerable to events elsewhere.

The US Dollar (USD) exchange rate was stronger against its major peers as the worries over Greece leant support to the safe haven currency. As the session progressed sentiment towards the US Dollar softened as economists continued to speculate on the timing of a Federal Reserve interest rate hike.