Greek Debt Worries Dented Euro Exchange Rate Outlook
Pressure has been mounting on the Euro (EUR) over the matter of the Greek bailout once again, following the latest International Monetary Fund (IMF) assessment of the Hellenic nation’s economy. While the Fund once again called for Greece to receive debt relief, citing the current level of debt is unsustainable, this offered little cause for confidence. As Eurogroup President Jeroen Dijsselbloem was quick to dismiss the suggestion, the rift between Greece’s creditors appeared to be widening, prompting worries that the Eurozone could be heading into a fresh crisis.
However, the Euro Pound (EUR GBP) exchange rate was able to regain some ground on Wednesday afternoon in spite of an absence of fresh Eurozone data. Confidence in the Pound (GBP) faltered as the government’s Article 50 bill continued to progress through Parliament, especially as MPs failed to pass any amendments guaranteeing greater parliamentary involvement in the process. Sterling also weakened in response to comments from Bank of England (BoE) Deputy Governor Jon Cunliffe, who took a more dovish tone than investors would have liked.
EUR GBP Exchange Rate Forecast to Trend Lower on Narrowed German Surplus
The latest German trade figures are not expected to offer any particular support to the single currency, with forecasts pointing towards a marked narrowing of the trade surplus from 22.6 billion to 20.5 billion. This would indicate that the Eurozone’s powerhouse economy is in a less robust state than expected, particularly if exports are shown to have fallen on the month.
Rising political risk will also likely weigh on the EUR GBP exchange rate in coming days. If National Front leader Marine Le Pen continues to gain momentum in the French presidential race the single currency could weaken further. Political developments in Germany and Greece are similarly expected to drive the direction of the Euro, with worries over the future of the Eurozone unlikely to ease for the foreseeable future.
Friday’s UK visible trade balance figure and production data could offer the Pound stronger support, however. As the trade deficit is predicted to have narrowed from -12.1 billion to -11.4 billion, confidence in the outlook of the domestic economy could improve. Even so, the uncertainty generated by the Brexit vote will continue to put downside pressure on the Pound. As analysts at Nomura noted:
‘We expect a hard Brexit to be delivered over the next two years by Prime Minister May. While the UK should have exited the EU via Article 50 by spring 2019, a comprehensive free trade agreement with the EU is likely to take substantially longer to negotiate.’
Current Interbank EUR GBP Exchange Rates
At the time of writing, the Euro Pound (EUR GBP) exchange rate was trending narrowly at 0.85, while the Pound Euro (GBP EUR) exchange rate was similarly range-bound around 1.16.
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