Pound to Euro Exchange Rate Forecast: The Pound to Euro exchange rate reached a three and a half year high on Monday of 1.2443 as general elections in France and Greece left financial markets reeling.

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By on May 8th, 2012.
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Foreign Currency Market Update – GBP / EUR Update

The Pound to Euro exchange rate reached a three and a half year high on Monday of 1.2443 as general elections in France and Greece left financial markets reeling.

Uncertainty surrounding the Eurozone debt crisis escalated to an unbearable level for many investors over the weekend as both France and Greece turned their back on austerity. In France Francois Hollande beat Nicolas Sarkozy comprehensively to become the first Socialist leader in France for 17 years. Hollande has vowed to fight against German-led austerity and renegotiate the newly formed fiscal compact which has unsettled Euro investors.

However, the primary cause for concern is the situation in Greece where no major parties were able to form a coalition government. Over 60% of the vote was shared between various far-Left and far-Right parties who are opposed to the crippling austerity measures that are a pre-requisite to the EU-IMF bailout package that is keeping Greece within the Eurozone. The result left Greece ungovernable and the likelihood of the country exiting the Eurozone in the near future is now 50-75% according to Citibank. The Euro plummeted on the news of a hung parliament in Greece as the threat of contagion among the peripheral Eurozone member states increased.

The Pound’s current strength has been dictated principally by weaknesses in the Eurozone rather than outright potency in the UK economy. Last week in the 17-nation bloc: Unemployment rose to 10.9%, Manufacturing PMI fell to 45.9, Services PMI fell to 46.7 and Producer Price Index fell to 3.3%. The UK fared a little better with Manufacturing PMI remaining in expansion at 50.5, Construction PMI falling less than expected to 55.8, and Services PMI trumping the Eurozone figure whilst still falling to 53.3. However political concerns have largely overshadowed ecostats and it is the election results in France and Greece which have sent Sterling to its three and a half year highs.

Looking ahead and it will be interesting to see whether the Euro can halt its chaotic plunge down the currency markets, but with investor confidence frayed to say the least that looks a very difficult prospect. The main releases to look out for are the ECB’s Monthly Report for May, the BoE’s Rate Decision and Asset Purchase Target, German Inflation figures, UK Producer Price Index, and European Commission Economic Growth Forecasts.

Related posts:

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  3. The currency markets saw the GBP ZAR exchange rate break down into the 11.70s
  4. Pound to Euro Exchange Rate Forecast – The Pound reached a 22-month high of 1.2308 against the Euro
  5. Foreign Exchange News – The Euro declines as Germany and France agree to let Greece seek help from the IMF

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