Euro exchange rate volatile as Greece dominates sentiment

On 21 May, European leaders gathered in the Latvian capital of Riga for a two-day summit in which a breakthrough was hoped to be reached. Greek Prime Minister Alexis Tsipras, French President Francois Hollande and German Chancellor Angela Merkel held late night talks, which ended without any signs of a breakthrough that could see Athens being granted vitally needed bailout funds.

Time is running out for Tsipras to reach a deal, which would see Greece receive the remaining EUR 7.2 billion tranche of aid funds. The heavily indebted nation will not be able to repay the EUR 300 million owed to the International Monetary Fund (IMF) due on 5 June.

If Greece fails to make the payment, the euro will tumble as fears over a possible Greek exit from the Eurozone will soar. Such an event could prove to be disastrous for the Eurozone and wider European Union. Upon its inception in 2000, the region’s leaders boasted that the currency was viable and secure; a Grexit would leave that boast in ruins and could lead to other struggling Eurozone members looking towards the fire escape.

Worries over Greece overshadowed the release of economic data, which showed that the Eurozone economy is showing signs of a recovery. France in particular appears to be recovering as data showed that consumer confidence in the region’s second largest economy improved by a bigger-than-forecast margin in May.

The pound sterling to euro exchange rate meanwhile is expected to become more volatile as attention focuses on the proposed in/out referendum on the UK’s membership of the EU. Prime Minister David Cameron was also in Riga to attempt to get negotiations on EU reforms underway.

‘You’ll hear one day this is possible, the next day something else is impossible. One thing throughout all of this will be constant, and that is my determination to deliver for the British people a reform of the EU so they get a proper choice in that in/out referendum that we’ll hold before the end of 2017,’ Mr Cameron said upon his arrival in the Latvian capital.

The debate as to whether the UK should remain in the EU or leave is set to influence the GBP/EUR and is sure to intensify over the coming months.

Contributed by TorFX

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