Risk-on trading improved slightly this morning, as news from Greece suggests that pro-bailout party New Democracy are currently ahead of Alexis Tsipras’ anti-austerity SYRIZA coalition on the exit polls.
Foreign Currency Market Update – GBP / EUR Update
The Pound opened over a cent higher against the Euro this week as political leaders in Europe began to openly discuss the possibility of a Greek exit from the Eurozone. Sterling grew from 1.2365 last Monday morning to 1.2505 on Friday evening, despite slowing inflation, faltering Retail Sales and another downward revision to Q1’s GDP results.
The headline UK Consumer Price Index inflation figure fell dramatically in April from 3.5% to 3.0% which threatened to destabilise the Pound as it gives the Bank of England more room to manoeuvre. The latest BoE minutes report resembles the mid-point of the Central Bank’s three-point turn away from hawkish monetary policy and back to the customary dovish tones that are often championed by MPC member Adam Posen. This month’s vote saw policy unchanged, but showed that many on the committee were sitting on the fence. Since then Posen has publicly stated that his move to a looser stance was premature, indicating that further quantitative easing is a distinct possibility in June.
GBP/EUR fell as low as 1.2345 on Wednesday as UK Retail Sales declined by -0.3% which combined with the discomforting minutes report to impact negatively on the Pound. However as the day went on, rapid spinning of the rumour mill sent stories of Grexit contingency plans gushing around Europe. The Euro fell by half a cent as former Greek Prime Minister Lucas Papademos gave a speech that was interpreted by investors as a clear sign that preparations were being made across the continent for Greece to leave the Eurozone. Sterling pushed the single currency down a further half-cent on Friday as the Spanish banking sector re-emerged as the second greatest threat to the future of the 17-nation bloc. The country’s fourth largest lender Bankia announced that it needs €19 billion in rescue funding to stay afloat while Spain’s wealthiest autonomous region Catalonia also called for central government financing support. This sent the Pound to Euro exchange rate to 1.2535 as investors were reminded of the multitude of possible mortal blows that the Eurozone must defend itself against.
The week ahead is rather quiet on the data front with: German inflation and Eurozone Consumer Confidence expected to stay the same; German Retail Sales and UK Manufacturing PMI predicted to decline slightly; and UK Mortgage Approvals and the Eurozone Unemployment Rate set for mild increases. The shortage of major fundamental data allows for the possibility of short profit-taking stances to bring Sterling down a little, but any shock announcements from the political sphere could lead to enhanced market volatility.
Risk-on trading improved slightly this morning, as news from Greece suggests that pro-bailout party New Democracy are currently ahead of Alexis Tsipras’ anti-austerity SYRIZA coalition on the exit polls. The Euro has improved by a third of a cent, but optimism remains muted due to the fact that New Democracy finished as the most popular party in the last vote but were still unable to find the necessary support to form a majority government.
Summary of major upcoming data releases that we think may move the market.
- The pound improved by over a cent against the Euro on Tuesday as attention in the Eurozone turned to Spain
- The Pound to Euro exchange rate commenced last week’s trading at a 5-week high of 1.2071
- The Pound has given the Euro a battering over the past week following news that further UK central bank stimulus now seems unlikely
- The Pound to Euro Exchange Rate has been fluctuating around the 1.200 mark this week
- The Pound reached a fresh three and a half year high against the Euro