Euro to Pound Exchange Rate (EUR/GBP) Drops As Greece Fears Escalate

June 18, 2013 - Written by John Cameron

STORY LINK Euro to Pound Exchange Rate (EUR/GBP) Drops As Greece Fears Escalate

Sometimes politicians go too far. After signs in recent months that the economic situation in Greece was stabilising and with some positive economic growth in the troubled Hellenic state firmly within sight, the nation’s leader Antonis Samaras appears to have plunged his country into a new constitutional crisis. Samaras didn’t act to end his nation’s punishing austerity measures, nor did he announce plans to exit the eurozone – instead, he shut down Greece’s national broadcaster with only 24hrs notice. Samaras’ action appears to have been the stick which broke the camel’s back for the Prime Minister’s two junior coalition partner parties whose support he relies upon in order to retain power.

Samaras accused the state broadcaster ERT of deeply entrenched corruption and widespread waste. However, ERT proved to be an unpopular target and the closing down of such a national institution, which has been in existence for 75 years has angered the Greek people and forced Samaras to hold emergency talks with his party’s coalition partners. If these talks yield anything other than a positive outcome, then Greece will be faced with a new round of general elections and the prospect of an anti-austerity coalition wresting power from the current government. The prospects of such an event caused investors to shift out of euro-denominated assets during yesterday’s session, sending the euro to Pound Sterling exchange rate lower. The EUR GBP rate traded down to 0.8477 during the middle part of the European session and further downside appears a possibility if the problem is not rapidly resolved.

Elsewhere, this afternoon’s US Consumer Price Index data is likely to have an impact on investors’ expectations regarding a reduction in QE by the Federal Reserve tomorrow evening. Any indication from the numbers that the rate of price rises in the States is beginning to escalate, then a near-term tapering of QE will become more likely. Such an outcome will send the Pound to US Dollar exchange rate (currency : GBP USD) sharply lower.

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