Greece Threat Forecast to Send Pound Sterling Euro Exchange Rate Higher GBP EUR

May 29, 2015 - Written by John Cameron

STORY LINK Greece Threat Forecast to Send Pound Sterling Euro Exchange Rate Higher GBP EUR

It’s been a day of movement for the Pound Sterling euro exchange rate with the pair initially slumping into the 1.3900s before recovering to trade up to 1.4089 GBP EUR a short time ago.

The initial poor performance from the Pound was driven by a mildly disappointing set of Q1 Gross Domestic Product numbers which revealed that the UK economy had expanded by a lower than anticipated annualised 2.4% during the first three months of this year. Analysts had been expecting a showing of 2.5%, so Sterling lost ground across the board.

However, GBP EUR has made a roaring comeback this afternoon as investors’ fears regarding Greece re-surface. Although Athens’ official spokesman seems bullish on the chances of a debt deal being sealed by Sunday night, the European Central Bank is far from convinced. The ECB’s latest missive, published earlier today, struck a chilling tone, stating that,

‘sovereign risks emanating from Greece, in particular, have increased sharply owing to heightened political uncertainty over the past six months, while the banking sector in Greece has witnessed substantial deposit outflows, a loss of access to the wholesale funding market and deteriorating asset quality.
Financial market reactions to the developments in Greece have been muted to date, but in the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro area sovereigns could materialise.’

If the ECB’s warning comes to pass, then analysts forecast that the Pound Sterling euro exchange rate will break back above its current multi-year high of 1.4257 GBP EUR which it reached during the middle part of March. Such a move would propel the pair to levels it has not touched since the first half of 2007, opening up the possibility of trading into 1.5000s once more.

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