Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate failed to break through resistance at 1.3940 last week despite upbeat UK labour market data and concerns regarding Greece’s future within the Eurozone.
GBP/EUR rallied from 1.3800 to 1.3880 last Monday as markets reacted negatively to rumours that Greek Prime Minister Alexis Tsipras was considering holding snap elections in order to gain a full majority, which was seen to increase economic instability in the Hellenic nation at an inopportune moment.
The Pound remained close to 1.3880 on Tuesday as traders digested an on-point 0.0% UK CPI inflation print. Although the zero percent score was the joint lowest consumer price index score on record, and indeed the lowest unofficial rate since the swinging sixties, it did not drive demand for Sterling lower because some investors had expected the index to slip into disinflationary territory. Greek exit concerns painted a dark backdrop across the European canvass on Tuesday but a surprise 1.6% jump in Eurozone industrial production shows there are highlights to the economic picture.
Tensions were high at the European Central Bank on Wednesday, not least because of the situation in Greece but also because of an intruder wielding a bag of glitter and wearing a provocative t-shirt. The 21-year-old female protestor burst onto ECB President Mario Draghi’s desk during his press conference and sprayed specks of gold glitter in his face whilst shouting out repeatedly the choice words written on her top. Draghi escaped unharmed from the self-titled ‘butterfly protest’ and proceeded to confirm that quantitative easing would last until at least September 2016 in the currency bloc. The ECB chief’s dovish remarks, and not the ‘butterfly protest’, helped GBP/EUR strike a four-week high of 1.3954.
Talk of compromise, ‘compromise, compromise, compromise’ to be precise, from Greek finance minister Yannis Varoufakis kept the single currency afloat on Thursday as speculation over a possible ‘Grexit’ continued to grow.
And on Friday GBP/EUR remained below 1.3940 for the majority of the session as analysts began to accept the possibility that German Chancellor Angela Merkel could soften her hard line approach to Greek debt renegotiations in order to ensure that the Hellenic nation does not suffer an untimely exit and subsequently default on the vast sums of money that it owes to Germany.
With British retail sales set to print sturdily at 5.5%, Bank of England minutes likely to show that interest rates will remain on hold throughout 2015 and Eurozone private sector data projected to point towards a mild expansion of GDP at the beginning of the year, there is little scope for large moves in GBP/EUR this week.
However, the pair will remain susceptible to both ‘Grexit’ fears and UK general election concerns. With Greece the more pressing of the two matters it looks as though GBP/EUR could retain a strong exchange rate north of 1.3800 for the majority of the week.
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