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Pound to Euro Exchange Rate Slides ahead of May's BoE Rate News

May 10, 2016 - Written by Frank Davies

The near-future will bring the announcement of the Bank of England's May interest rate decision and inflation rate reports. The central bank may devalue the Pound if it sounds excessively dovish in its outlook.

While notable developments have taken place in the ongoing talks to resolve Greece's apparent inability to pay back its debts, the fact that no clear solution has yet been reached has served to elevate Sterling against the Euro.

Snap Election weighs on Australian Dollar, GBP/AUD Exchange Rate Climbs

Writs were issued to dissolve both the lower and upper houses of Australia’s parliament yesterday following Prime Minister Malcolm Turnbull’s decision to call a snap election in the Antipodean nation. Turnbull became Australia’s Prime Minister only eight months ago, after he wrested power from erstwhile leader Tony Abbott, but he has sought to cement his position by seeking a fresh mandate from the electorate.

A victory for Turnbull would introduce a shot of stability into the political make-up of a nation which has had three Prime Ministers since 2013. However, if the pollsters are to be believed, Turnbull’s bold move will fail; the latest opinion poll suggests that the Labour party, which has been led by Bill Shorten since October 2013, will record an outright victory over the centre-right ruling coalition in the lower house.

The uncertainty triggered by Australia’s domestic political situation held back the Australian Dollar (currency : AUD) yesterday and the Pound Aussie exchange rate spiked to as high as 1.9728 GBP AUD as a consequence. Analysts forecast that the could be pronounced upside for the pair in the lead-up to Australia’s double dissolution Federal Election which takes place on 2nd July.

Confidence that a Greek Debt Solution will be Found has Caused the GBP/EUR Exchange Rate to Decline

Elsewhere, perennial debt struggler Greece was back in the headlines yesterday. Widespread popular protests in the streets of Athens did not stop the Head of the eurogroup of finance ministers, Jeroen Dijsselbloem, suggesting that he is hopeful a deal with Greece’s leaders on debt reforms will be reached on 24th May.

Yesterday saw talks begin in earnest between Greece and its creditors, with Dijsselbloem stating that, ‘today, we'll only have a first discussion on what, when, if and how debt relief measures could take place. I don't expect any decisions on that, it's only a first discussion.’

However, German Finance Minister Wolfgang Schaeuble, who has regularly doubted Greece’s commitment to her existing debt arrangements, told reporters that he is ‘confident’ a deal will be reached. The euro (currency : EUR) recorded gains against the Pound as a result, with the Sterling to euro exchange rate dropping from an intraday high of 1.2710 to end the European session back down in the low 1.2600s.

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