GBP-EUR: Greek Debt Yields Spiral as Upside Forecast for Pound Euro Exchange Rate

April 16, 2015 - Written by John Cameron

STORY LINK GBP-EUR: Greek Debt Yields Spiral as Upside Forecast for Pound Euro Exchange Rate

The Pound Sterling euro exchange rate has endured a volatile day in the markets thanks to a raft of comments from global central bankers and fresh information regarding Greece’s burgeoning debt crisis.

The GBP EUR exchange rate struck an intraday low of 1.3829 during early trading but by the middle part of the European equities session, the pair was changing hands at its highest level since 19th March.

The break higher was fuelled by a fresh move out of the single currency from investors as concerns grew regarding the perilous state of Greece’s finances.

Fears that, due to the snail-like progress of talks between Athens and her creditors, Greece may sleepwalk into a catastrophic debt default, sent the yield on Greek 3-year bond up by a hefty 3.5% on the day. The Greek government is now forced to pay almost 30% to service its short-term debts, suggesting that market participants believe that there is a real and present danger than the debt-addled Hellenic state will go bust before the middle part of Summer.

Fears about the future path for Greece were augmented by reports in the British financial press suggesting that Greece had made an ‘informal approach’ to the International Monetary Fund to delay its next round of bail-out payments. Athens is contracted to repay some €1bn to the IMF next month and many commentators suggest that a failure to do so will force Athens to officially default on its debt. IMF Chief Christine Legarde confirmed earlier that she remains concerned regarding Greece’s liquidity situation, but went on to attempt to shore-up confidence in Athens and the euro alike by stating that her organisation, ‘willl ensure that lending to IMF is safe’.

Meanwhile, in the States, US Federal Reserve policymaker Richard Fischer was pushing in the same direction; he weakly stated to those who would listen that the situation in, ‘Greece looks less problematic than it did 5 years ago.’ The markets, however, were less than convinced by this assertion, as evidenced by a sharp sell-off in the German stock market. Frankfurt’s headline Dax index shed the best part of 2.0% on the day as market participants fretted over the potential effect which a Greek debt default might have on the euroland as a whole.

The last word goes to European Union Commissioner Pierre Moscovici who stated a short time ago that there is, ‘no political will in Europe for Greek debt cut. Greek politicians are wrong to want debt cut first.’ The outlook for the single currency remains firmly negative.

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