Pound to Euro Forecast Crashes on Final PMI Response

May 6, 2016 - Written by John Cameron

STORY LINK Pound to Euro Forecast Crashes on Final PMI Response

The Pound has dropped heavily against the single currency of late, owing to an appropriate response to the UK's poor PMI results.

Euro (EUR) Exchange Rates Struggle on Greek Debt Concerns

The euro (currency : EUR) has recorded sustained gains against the Pound Sterling (currency : GBP) over the past six months. The GBP EUR exchange rate has tumbled from well above the 1.4000 GBP EUR threshold during the early part of last December down into the low 1.2000s early last month as investors’ concerns regarding the euroland’s debt problems subsided. Throughout this period, news reports regarding perennial euroland debt struggler Greece remained few and far between.

However, the debt addled Hellenic state has hit the headlines once again this week, with evidence emerging that two of Greece’s major creditors – the International Monetary Fund and the European Commission – are at loggerheads on the nation’s ability to re-pay what it owes.

The divergence of opinion led to Jeroen Dijsselbloem, the head of the eurogroup of Finance Ministers, commenting yesterday that he had, ‘came to the conclusion that the policy package should include a contingent package of additional measures that would be implemented only if necessary to reach the primary surplus target for 2018.’

After tortuous negotiations during the first half of last year, Greece negotiated a bail out deal with the EU / ECB / IMF ‘Troika’ which saw it stave off an imminent bankruptcy, but in order to qualify for each tranche of the bailout package, Greek policymakers had to accept reforms to its economic system.

Dovish Moody's Report Also Weighed on Euro Exchange Rates

The euro suffered an additional drag yesterday in the form of a report released by leading credit ratings agency Moody’s which cast doubt on the eurozone’s ability to weather even minor shocks in the medium term. The missive noted that, ‘even if the EU survives its current challenges largely unscathed, even a 'small' future crisis could threaten the sustainability of current institutional frameworks, if it coincided with negative public sentiment and populist political developments.’

These developments caused many analysts to downgrade their forecast for the future performance of the single currency, with many now predicting that the Pound euro exchange rate may be heading back above the 1.3000 GBP EUR threshold sooner rather than later.

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TAGS: Euro Forecasts Pound Euro Forecasts Pound Sterling Forecasts