Pressure mounted on the Euro as worries over the threat of a fresh Eurozone debt crisis started to flare once again.
Reports in the German media that Greece could default on its July debt repayment naturally spooked investors, even though government officials were quick to deny the speculation.
With the Eurogroup still yet to approve the disbursement of the next tranche of bailout funds the outlook for the Greek economy remains decidedly muted at this juncture.
Disagreement over the subject of debt relief is likely to keep up the pressure on the Euro, particularly if the future involvement of the International Monetary Fund (IMF) remains in doubt.
Although the French first quarter gross domestic product was unexpectedly revised higher this failed to boost the Euro Pound exchange rate on Tuesday morning.
Confidence in the single currency could weaken further on the back of the latest German consumer price index report, which could add to the bearish mood surrounding the outlook of the currency union.
As analysts at Lloyds Bank noted:
‘We expect German headline HICP inflation to drop back to 1.5%y/y in May from 2.0% in April, which is expected to be broadly mirrored in the Eurozone ‘flash’ CPI estimate tomorrow. It would indicate that it is too early to declare inflation can be sustained at the ECB’s goal without continuing policy stimulus.’
Given the generally dovish tone taken by European Central Bank (ECB) policymakers in recent comments a weaker showing here may encourage further Euro selling.
While opinion polls have continued to indicate a narrowing of the Conservatives’ initial lead the mood towards the Pound has nevertheless picked up, meanwhile.
Even though the outcome of the snap general election appears rather less certain than markets had initially thought, however, the downside potential of Sterling is somewhat limited.
The odds still favour Theresa May emerging victorious in June, though, maintaining some degree of support for GBP exchange rates as investors continue to hope for a smoother Brexit process.
Demand for the Pound could falter if the latest consumer credit and mortgage approval figures point towards a further weakening in domestic confidence.
Also in focus will be May’s raft of PMIs, which could offer further evidence of a slowing UK economy and offer the EUR GBP exchange rate a rallying point.
After a poor showing in the first quarter investors are likely to be deterred by any ongoing signs of weakening economic activity, particularly if the services PMI fails to show an improvement on the month.
Current EUR GBP Interbank Exchange Rates
At the time of writing, the Euro Pound exchange rate was trending lower in the region of 0.8671. Meanwhile, the Pound Euro exchange rate was making gains around 1.1531.
