The Euro to US Dollar (EUR/USD) exchange rate weakened by more than 0.60% on Monday as the single currency was weighed upon by increased fears that Greece could be forced out of the Eurozone and economic data which came in below economist expectations.
Prior to this, the US Dollar had been under pressure from a string of disappointing economic data releases, which suggest that the world’s largest economy struggled to maintain momentum in the first quarter of 2015. Sentiment towards the ‘Greenback’ fell as the poor data caused economists to push back their expectations for an interest rate hike in the summer.
As Monday’s session got under way, the US currency recovered its earlier losses as market attention shifted once again to Greece. The Euro came under pressure as ECB policymaker Christian Noyer said that the country may not find collateral for loans and warned that an exit from the Eurozone would likely be traumatic for the region and the wider global economy.
‘At some point, Greek banks are likely to be unable to offer enough collateral to access refinancing even for emergency liquidity. It is therefore urgent that Greece put an end to the current situation and that Athens should establish a programme with the IMF and the backing of other Eurozone countries in order to re-establish confidence,’ Noyer said in an interview with the Le Figaro newspaper.
According to an economist at Allianz, the chances of Athens successfully reaching a deal with its creditors is now at just 10%. There is a 45% chance that the nation would be able to make a last minute messy compromise and remain in the Eurozone and there is a 45% chance that Greece could be forced out of the currency bloc entirely.
Also weighing upon the Euro on Monday was the release of disappointing economic data. German Producer Price Inflation (PPI) was shown to have fallen for a 20
th
consecutive month in March. According to the German statistics agency Destatit, producer prices tumbled by -1.7% on annual basis and rose by just 0.1% on a month-on-month basis.
A separate report published by Eurostat also put pressure on the Euro as it showed that construction across the Eurozone fell sharply in February. The report showed that construction activity fell by -3.7% on a yearly basis and fell by 1.8% on a monthly basis.
The Euro could regain some ground on Tuesday if the latest ZEW Sentiment index comes in positively.
The Euro to US Dollar exchange rate reached a session low of 1.0712