Euro gains strength after bailout plan for Greece

Sterling hit a one-month high against the euro on Thursday after a stronger-than-expected headline reading of UK retail sales suggested the UK economy is slowly improving. However, continued fears over political uncertainty in having a hung Parliament, coupled with the lack of a plan to cut the deficit meant Sterling fell again later in the day.

Also the plan to bail Greece out strengthened the Euro later in the day, and as a result rates dropped. At 08:30am rates are as follows:

  • GBP/EUR 1.1085
  • GBP/USD 1.4817
  • GBP/AUD 1.6323
  • GBP/NZD 2.0945
  • GBP/CAD 1.5172
  • GBP/CHF 1.5833
  • GBP/ZAR 10.993
  • GBP/JPY 137.07
  • EUR/USD 1.3365

Weak Pound
Analysts are unconvinced Wednesday’s budget will help the government increase public support and narrow the Conservative Party’s lead ahead of a vote expected in early May, and a hung parliament remains a real possibility.

Most polls now point to a hung parliament, where no party has a majority. This is an uncomfortable scenario for markets which fear it could leave a government without the clout to make the unpopular spending cuts needed to bring down record public debt. This situation is likely to remain until well after the election when whichever government we end up with outlines their spending cuts.

Strong Euro
The main reason GBPEUR rates fell yesterday was because of the bailout plan announced to help Greece. All 16 eurozone countries have backed a financing plan to help debt-laden Greece, which will include IMF money.

The joint eurozone and IMF bailout programme envisages strict conditions and requires the unanimous agreement of the 16 eurozone nations to release loans. The agreement included no numbers, but officials in Brussels – speaking on condition of anonymity – said the total package would be some 22bn euros.

The eurozone had avoided seeking an IMF loan for Greece, preferring a European solution and anxious to maintain global confidence in the euro. This was the case, and the Euro strengthened throughout the afternoon, making it more expensive to purchase and the net result is falling rates.

Summary
The pound is weak. The Euro and US Dollar are now gaining strength. It’s likely Sterling will remain weak until some time after the election. If you have a requirement to purchase currency, then consider the risk the markets hold, and make sure to use FCG to help you achieve the best possible commercial rate.

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