Although German Chancellor Angela Merkel’s CDU party emerged with a comfortable victory in the North Rhine-Westphalia state election overnight this failed to significantly boost the Euro.
This strong showing nevertheless helped to encourage hopes that the populist surge has started to fade, suggesting that Merkel will be able to secure a fourth term in this year’s election.
As researchers at Lloyds Bank noted:
‘This is seen as a major coup and highlights the support for Merkel and her party in the last significant test before their national elections in September, where she hopes to win a fourth term at the helm. While elections, as we know, can throw up different outcomes, this should provide some sentiment stability at the very least.’
With Emmanuel Macron sworn in as the new French president the outlook of the currency union appears more secure at the start of the week.
Even so, EUR exchange rates remained under some pressure ahead of the first quarter Greek gross domestic product report.
Ahead of Thursday’s crucial parliamentary vote on new creditor-mandated tax reforms and pension cuts worries over the outlook of the Hellenic nation are weighing on the single currency.
While forecasts point towards a moderate improvement at the start of 2017 the health of the Greek economy is likely to remain weaker than markets would like.
If growth remains soft the Euro Pound exchange rate could extend its slump further.
Jitters are likely to increase as the Greek parliamentary vote draws closer, given Prime Minister Alexis Tsipras’ slim majority.
As the opposition has uniformly refused to endorse this latest raft of concessions any rebellion from government MPs could see the reforms shot down.
This would not bode well for the Euro, given that the disbursement of the next tranche of bailout funds is tied to the passage of these additional austerity measures.
Any problems could weigh heavily on EUR exchange rates, with the threat of another Eurozone crisis not entirely banished yet.
Further volatility is likely in store for the Pound, though, as investors await April’s consumer price index report.
After last week’s disappointing raft of UK data investors could find further cause for worry over the state of the domestic economy, with higher inflation likely to put pressure on consumer spending.
If inflation looks to be rising at a faster pace than anticipated this could encourage bets that the Bank of England (BoE) may return to a tightening bias sooner rather than later.
However, as a softer form of Brexit underpins the BoE’s latest forecasts it seems unlikely that policymakers will turn substantially more hawkish in the near future.
Current EUR GBP Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending lower at 0.8464. Meanwhile, the Pound Euro exchange rate was making modest gains in the region of 1.1815.
