The Euro to Pound Sterling (EUR/GBP) exchange rate made gains on Tuesday as disappointing UK economic data caused traders to raise their bets that the Bank of England will delay raising interest rates. The Euro to US Dollar (EUR/USD) exchange rate slid to a new 9-year low as data out of the Eurozone showed that the region could be heading towards a recession in 2015.
On Monday the Euro to Pound Sterling (EUR/GBP) exchange rate fluctuated later in Monday’s session as German inflation data came in worse than forecast. Following the data’s release the Euro to US Dollar (EUR/USD) exchange rate slid to a fresh 9-year low.
According to German statistics agency Destatis, the annual rate of inflation rose just 0.2% in December, below forecasts for 0.3% and slowing from 0.6% in November. The weak figure caused economists to raise their bets that the European Central Bank (ECB) will introduce quantitative easing at this months policy meeting.
German consumer prices were flat on a month-over-month basis, compared to expectations for an increase of 0.1%.
Earlier the Euro to Pound (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates were trading at multi-year lows on Monday as concerns grow that the left wing SYRIZA party could win the Greek general election and as ECB President Mario Draghi gave his clearest indication yet that the bank will introduce a quantitative easing programme.
In less than three weeks, the Greek people will take to the polls in a make or break general election for Prime Minister Antonis Samaras. Samaras recently warned that an election victory for the left-wing Syriza party could lead to the nation defaulting on its debts and exit from the Eurozone.
Syriza leader Alexis Tsipras has promised to end German dominated austerity measures. According to a German newspaper, Chancellor Angela Merkel said that she is ready to accept Greece leaving the Eurozone, an event that she sees as inevitable if Syriza wins.
A recent poll shows that Syriza is leading in the polls by having a 3.1% lead over the ruling conservatives. The poll put support for SYRIZA at 30.4% against 27.3% for the conservatives of Samaras’s New Democracy party.
Syriza wants to renegotiate the terms of its international bailout
Under current terms, the so-called troika of the EU, International Monetary Fund and European Central Bank supported Greece with the promise of €240bn (£188bn) in return for budget cuts and economic reforms. However, the austerity measures have created high levels of unemployment in the country.
With the outcome of the vote, uncertain economists are concerned that a Syriza win could lead to a Grexit, which in turn could lead to other struggling Eurozone members seeking to either leave or negotiate their membership.
Also weighing heavily on the single currency is speculation that the ECB will introduce a quantitative easing programme. If the programme is introduced the Euro will decline further as the ECB’s monetary policy diverges from the Bank of England and US Federal Reserve.
‘It’s very hard to imagine something that can convince the market that the Euro is not a selling opportunity at this juncture. The market continues to speculate that the ECB will start QE this month. Clearly the election in Greece probably complicates the agenda for Draghi,’ said Roberto Mialich, a senior currency strategist at UniCredit SpA.
Against the US Dollar, the Euro tumbled to its lowest level in nine years and against the Pound, it was trading close to a seven year low. The Pound gave up some of its earlier gains following the release of softer than expected construction PMI data.
Euro Exchange Rate News:
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