3 exchange rate-moving developments to watch out for this week

The pound sterling to euro exchange rate spent last week trending between 1.39 – 1.41 as the ongoing Greek bailout negotiations and UK growth data dictated demand for the pairing.

Conflicting commentary from European officials regarding the likelihood of Greece defaulting on its next debt repayment to the International Monetary Fund (IMF) variously strengthened and weakened the euro, while the pound came under pressure as the UK’s first quarter growth estimates were confirmed rather than positively revised.  

The euro also put on a mixed performance against the US Dollar as Federal Reserve interest rate hike expectations were supported by hawkish comments from Fed Chairwoman Janet Yellen and some above-forecast US ecostats.

Whether or not the GBP/EUR exchange rate returns to trending around its recent 2 ½ month highs depends on a number of factors – the most important of which being Greece either meeting or defaulting on its upcoming repayment to the IMF and the tone adopted by the Bank of England (BoE) in its latest inflation report.

Here are the week’s three main exchange rate-moving events:

Greek debt repayment

Greece is due to make its next repayment to the IMF on 5 June, but various officials from the Hellenic nation have stated that it just doesn’t have the funds in place to meet its obligation. Although other officials have claimed that Greece will pay up in time, if a default should occur it would substantially increase the odds of the nation leaving the Eurozone. A default, and the subsequent socioeconomic uncertainty created by the event, would take a heavy toll on the euro and is likely to drive the common currency lower against both the pound and US dollar.

BoE inflation report

Although the Bank of England (BoE) is due to announce its interest rate decision, the institution’s inflation report is more likely to have an impact on GBP/EUR trading. The meeting is largely expected to show that policymakers voted in favour of leaving interest rates and asset purchases unchanged. However, the inflation report may be hawkish in tone and could perhaps hint at borrowing costs being positively revised sooner than currently expected. If that proves to be the case, the pound may advance on the euro before the weekend.

US non-farm payrolls

The prospect of the Federal Reserve increasing interest rates in 2015 lent the US Dollar support last week and if the latest US employment data prints positively, we may see investors price a September adjustment back in. Such a development would reduce demand for higher-risk currencies. Currently economists are predicting that the US added 218,000 positions in May, leaving the unemployment rate unchanged at 5.4 percent. A stronger result could trigger a ‘Greenback’ surge. 

Contributed by TorFX

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