GBP/EUR Forecast: Could Greek/Portuguese Pact Improve Pound Sterling to Euro Exchange Rate?

April 11, 2016 - Written by John Cameron

STORY LINK GBP/EUR Forecast: Could Greek/Portuguese Pact Improve Pound Sterling to Euro Exchange Rate?

The Pound has made a steady gain on the Euro today, thanks to continued instability in Greece keeping the Euro down against GBP and its other rivals.

The latest news to emerge from the Eurozone has been that the Portuguese and Greek Prime Ministers have signed an anti-austerity agreement, something that is hardly likely to endear the Euro to investors in the long-run. Naturally, the Pound may be able to capitalise on this current disadvantage.

Today's Pound to Euro Rate (GBP/EUR) Sinks to 1.23 on Panama Papers Scandal, Brexit Concerns.

As last week drew to a close, the Euro (currency:EUR) was riding high against the Pound Sterling (currency:GBP), with the exchange rate ending Friday’s session at a lowly 1.2393.

In the lead-up to Christmas, the pair was trading at more than 20c higher, leading some analysts to suggest that GBP/EUR may now be oversold and due a correction higher.

Any moves higher, however, won't come close to 2015's best conversion levels for foreign exchange investors looking to move sterling to Europe.

British Pound Predicted to Remain Pressured Ahead of EU Referendum

Looking at the fundamentals, most FX insiders feel that the UK unit will struggle to register any significant gains until after June 23rd’s European Union in / out referendum.

However, other analysts surmise that the uncertainty which the popular vote continues to engender could well be eclipsed by a previously unexpected ‘Black Swan’ event on the other side of La Manche.

Portuguese Debt Concerns Could Drive Euro (EUR) Exchange Rates Lower

Proponents of this theory suggest that the most likely scenario for such an outcome is presented by Portugal’s burgeoning debt difficulties.

Twelve months ago, the fiscally-challenged Iberian state was having to pay investors holding its 10-year bonds a mere 1.5% interest; this represented the lowest yield on the benchmark 10-year gilt which the Portuguese administration has ever had to pay.

However, a year on and everything looks a little different; as of close of business Friday, the yield on Portugal’s 10-year bonds had increased to 3.2% - not quite as high as February’s level of 4.0%, but still a level verging on the uncomfortable for Portuguese policymakers.

In an echo of Greece’s recent debt woes, Portugal’s minority Socialist government, which wrested power during the final stages of last year, continues a long and painful dialogue with the European Union aimed at jettisoning the austerity measures which Brussels imposed as payment for earlier bailouts.

Foreign Exchange Forecast: GBP/EUR Expected to Gain if Portuguese Situation Worsens

The failure of leading Portuguese retail bank Banco Espirito Santo (BES) in Summer 2014 has set in motion a chain of events which have ramped up fear levels for investors in Portugal. BES’s healthy operations were farmed out to Novo Banco, while the government instigated a ‘bad bank’ for its toxic assets.

Late last year, Portugal’s central bank imposed a haircut on holders of Novo Banco bonds, triggering substantial losses for foreign institutional investors.

Matters in Portugal, however, could get worse at a moment’s notice, triggering a move against the euro. Zoeb Sachee, head of European government bond trading at Citi, warned last week that, ‘the thing about Portugal is it sometimes can behave a bit like emerging markets… It can lose liquidity pretty quickly — people’s memories of Portugal yielding 14, 15 per cent have not completely faded.’ Analysts therefore forecast that the next six months may not be as bright for the shared currency as the past six months.

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