The Pound Sterling to Euro (GBP/EUR) exchange rate softened slightly as the session progressed due to the European Commission revised its Eurozone growth forecasts for 2015 and 2016.
Earlier the Pound Sterling to Euro (GBP/EUR) exchange rate advanced to a session high of 1.340 on Thursday as concerns over Greece weighed upon the single currency.
Greece Looks Isolated
A standoff between Greece and its creditors now looks inevitable after the European Central Bank said that it will no longer accept Greek government bonds from banks seeking funding, a move that will now put pressure on the Greek central bank to provide extra liquidity for its lenders.
‘This is clearly the ECB signalling to the Greek government: You’re going to have to talk to international lenders in the troika and get a deal. Otherwise, really bad things are going to happen,’ said Jacob Kirkegaard from the Peterson Institute for International Economics.
The Greek government reacted by saying; ‘Greece does not aim to blackmail anyone but will not be blackmailed either. The ECB’s decision is an act of political pressure to quickly reach a deal.’
Following the announcement by the ECB, shares in Greece’s largest banks tumbled by more than 25% as it spooked the Athens market.
The ECB’s stance could also be seen as about turn after Greece’s new finance minister Yanis Varoufakis came from a meeting with ECB president Mario Draghi who apparently said that the central bank would do whatever it can to support Greece.
The announcement also suggests that support for the Greek plans to end its aid for reform programme is virtually non-existent as the majority of Eurozone central bank chiefs would have been required to support the ECB announcement.
The unexpected ECB move followed an appeal from Greece’s New Leftist government to the ECB to keep its banks afloat as it seeks to negotiate debt relief with its Eurozone partners. The ECB has now effectively refused that request, adding to Greece’s problems as Germany rejected any rollback of agreed austerity policies.
German Resistance Expected
Greece will also run into resistance from Germany who according to a document seen by Reuters is determined to force the New Greek government to abandon its pledges to raise the nation’s minimum wage and rehire fired public sector workers.
‘The Eurogroup needs a clear and front-loaded commitment by Greece to ensure full implementation of key reform measures necessary to keep the programme on track. The aim is the perpetuation of the agreed reform agenda,’ said the document.
Further losses for the Euro were restrained however as data out of Germany showed that Factory Orders in the Eurozone’s largest economy rallied strongly in December. Orders jumped by 4.2% reversing the -2.4% fall seen in the preceding month.
Euro Exchange Rates:
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