Thursday 23rd July 2015
Sterling/Euro rates have been threatening to fall for a week now, and today the market took a plunge pushing GBP/EUR rates down into the €1.41’s. After a quick look at the chart, I’ll go into more detail regarding what caused the rate to fall, and whether the Pound will go back up against the Euro.
Why has the Pound fallen against the Euro?
The first reason was Greece, which is becoming a regular and tiresome topic in the currency world! However it looks like things are getting closed to being resolved. They have taken a crucial step towards a bailout after its parliament passed a second set of reforms today, and this has given confidence back to the Euro. This is why the market initially started dropping this morning. There had been fears of a rebellion by Greek MPs, but the Greek Prime Minister Alexis Tsipras got the required support. This means that negotiations can begin on approving the terms of a third bailout. It looks like a final deal will be sorted out within the next 3 weeks, and if so I’d expect the rate to drop even further.
The second reason for the decline was some very poor UK Retail Sales numbers this morning. The number was expected to show a rise of 0.4%, but actually sales dropped by -0.2%. As retail sales are seen as a good overall barometer of economic activity, the news sent the Pound lower, pushing rates even further from the 8 year high of €1.44 we’ve recently seen.
Will rates recover?
Moving Forwards, longer term I think rates will continue to remain strong due to the UK economy performing well, despite today’s poor numbers. However in the short to medium term, if the ongoing Greek saga finally ends with a full €86bn bailout, expect the GBP/EUR rate to fall sharply as the Euro regains strength.
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