The Pound Sterling to Euro (GBP/EUR) exchange rate climbed to a 7-year high on Wednesday, as the markets grew jittery ahead of a crunch meeting between Greek and European Union Finance Ministers.
The GBP/EUR exchange rate hit a session high of 1.353
Greek Prime Minister Alexis Tsipras easily won a vote a confidence on Tuesday for his plans to end a deeply unpopular bailout programme and challenge European leaders. Tsipras delivered a rousing speech to parliament and hailed the vital role ‘little Greece’ was performing in changing the way Europe works.
German Finance Minister Wolfgang Schaeble is expected to be the main voice of opposition at today’s emergency finance ministers meeting as he said that if Greece does not want a new aid programme ‘then that’s it’. Other European ministers have warned that unless Athens requests an extension to the bailout, Greece will go bust by the end of the month.
The Greeks request for a bridging loan to cover its costs until September is likely to be refused.
According to an opinion poll, the Greek Prime Minister’s tough stance has the backing of 75% of the Greek population.
‘It is hard to be anything other than pessimistic about the outcome of what is unfolding in Europe, with respect to Greece and its negotiations with its creditors, as the negotiations continue to resemble a form of Mexican standoff, or a game of Russian roulette. The hope is that we may get some form of deal by next week, and hopefully before the end of the month. After the events of the last few days, it is hard to see any hope of a lasting solution given all the threats and the name-calling. It suggests that any solution over the coming days could well be just a sticking plaster, or a case of Grexit deferred, and then markets will have to go through the whole tedious process of name calling again,’ said Michael Hewson, chief market analyst at CMC Markets.
With some economists hiking their odds for a Greek exit from the Eurozone to as high as 50%, the markets are very nervous.
Credit rating agency Standard & Poor’s however believes that the risk of contagion from the Greek crisis to the wider Eurozone will be limited.
‘Greece’s risk premium has drastically increased again recently but the panic hasn’t leapfrogged over to the other former crisis countries. The risk of contagion does not seem to actually be that big. Greece’s economy is very weak and its links with the rest of the Eurozone are even smaller than the value assed suggests,’ said Standard & Poor’s chief sovereign ratings officer Moritz Kraemer.
The Euro could claw back some ground on Thursday if Eurozone Industrial Production data comes in positively and the Bank of England inflation report suggests that the UK is heading towards deflation.
Euro Exchange Rates:
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