Pound Sterling Forecast Higher vs Euro as Greece ECB Debt Deal Stalls

February 13, 2015 - Written by John Cameron

STORY LINK Pound Sterling Forecast Higher vs Euro as Greece ECB Debt Deal Stalls

Europe’s central banks stole the headlines in the global currency markets during yesterday’s session. The European Central Bank (EB) lead the way with its emergency bailout talks with Greece from the previous evening, casting a long shadow over the day’s events.

The official line from ECB policymakers during the immediate aftermath of the talks was that discussions had been ‘constructive’ but that they had failed to yield a concrete plan for extricating the Hellenic state from its deepening debt woes. Both sides agreed that they will reconvene on Monday and it appears likely that Greece’s new leadership has been given certain proposals to consider during the intervening period. Yesterday’s announcement that the ECB had extended its emergency line of credit to Greece’s banks suggests that hope is very far from being lost regarding a workable deal being reached.

Elsewhere in the European Union, Sweden’s central bank announced yesterday that it was cutting its key interest rate from 0.0% to a fresh record low of -0.1%. The development means that the Riksbank joins the ranks of the Swiss National Bank, The Bank of Canada and the Reserve Bank of Australia in a group of rate-cutters during the first six weeks of this year. Equities market participants approved, with global stock indices recording decent gains as the prospect of continued ‘easy money’ policies from major central banks continuing for the remainder of 2015 at least. Sweden’s reserve bank also revealed that it would be instigating its own SEK10 bn bond buying scheme which is similar in nature to the Quantitative Easing programme perused by the US Federal Reserve and the Bank of England during recent years.

Meanwhile, on the domestic front, the Bank of England’s Quarterly inflation report sent out mixed messages to investors. The Pound Sterling (currency:GBP) recorded good gains in the aftermath of the release of the report as market participants priced in the suggestion that Base Rate might be on its way upwards later this year thanks to the boost which cheaper energy costs will have on the power-hungry British economy. However, Governor Mark Carney confirmation that he expects UK inflation to stay below zero for several months later in the year could have the reverse effect.

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