Foreign Currency Market Update – GBP / EUR Update
The beginning of last week saw the Pound Sterling to Euro (GBP/EUR) exchange rate advance beyond 1.43 to achieve its strongest level for seven years. The movement in the pairing was largely the result of a widespread Euro-selloff being instigated by the latest development in the Greek bailout saga. After yet another round of failed negotiations, Greek Prime Minister Alexis Tsipras announced that he would be holding a ‘Yes’ ‘No’ referendum to let the public decide whether or not to accept the latest austerity programme put forward by lenders.
This decision saw the Euro tumble against almost all of its main counterparts and the common-currency largely held losses as the previous Greek bailout expired, the nation failed to meet its debt obligation to the International Monetary Fund (IMF) and Tsipras’ attempt to broker a last minute deal was rebuffed by creditors.
However, over the course of the week Sterling did give up ground and return to trending in the region of 1.40 as investors reacted to some surprisingly dovish interest rate-related remarks from the Bank of England’s (BoE) chief economist and less-than-impressive domestic manufacturing data. Although Friday’s Markit Services PMI for the UK printed more strongly than forecast, any GBP/EUR movement was limited ahead of the referendum.
While polls conducted in the week leading up to the vote pointed to the populace being split almost down the middle on whether to back austerity or put their faith in the negotiating powers of Tsipras, the result proved to be much more decisive than that. Greece voted 60% against accepting the bailout conditions put forward by creditors.
The development saw the Euro record declines against the Pound and US Dollar. Higher-risk currencies like the Australian Dollar also came under pressure as a result of the uncertainty occasioned by this unprecedented state of affairs. Throughout Monday’s European session the GBP/EUR exchange rate was fluctuating around the 1.41 level and the pairing is likely to experience further volatility on Tuesday as high-profile EU officials gather for emergency talks.
If it appears that Greece is not likely to reach an agreement with creditors and secure the aid it so desperately needs, the Euro may well fall back to trading in the region of seven-year lows against the Pound. Conversely, if the Eurogroup show a willingness to compromise to keep the nation in the currency bloc we could see the GBP/EUR pairing fall back below 1.40 over the next few days. While the ongoing Greek debt saga will be the main cause of Euro movement this week, investors with an interest in the GBP/EUR pairing will also be keeping an eye on the UK’s Manufacturing/Industrial Production data, NIESR GDP estimate for June, the Bank of England (BoE) interest rate decision and domestic trade balance figures. Any reports which bolster 2015 BoE interest rate hike expectations would be Sterling supportive. In terms of ecostats from the Eurozone, the main ones to be aware of include Germany’s Industrial Production and Trade Balance figures.
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Summary of major upcoming data releases that we think may move the market.