The recent volatility on Sterling exchange rates has shown no signs of letting up, with further aggressive spikes on GBP/EUR rates this week. The EUR had started to realign itself during the early part of the week and it did seem as if the Pound’s recent run was coming to an abrupt end.
However, since then we have seen the Pound start to creep back towards 1.34, despite a host of Eurozone data, including Retail Sales figures, which came out better than expected.
To me this is a huge indication that it is the on-going uncertainty around Greece and how the situation is going to affect the other Eurozone members, which is causing the EUR to drop. I feel without this scenario the EUR would now be putting pressure back on 1.30. Whilst the fiscal concerns in Greece are deep-rooted it does seem that any sort of resolution, however minor, could ease pressure on the single currency very quickly, as the markets will then look to economic data as a guide.
Personally I feel that the EUR will continue to find support around the current levels and if we do see the rates drop sooner rather than later, it is likely the Bank of England (BoE) will step in to try and talk the UK economy down, possibly in the form of dampening expectation of an interest rate hike, to try and control the Pounds value.
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