The Pound Sterling to Euro (GBP/EUR) exchange rate hit a session high of 1.34 on Wednesday and is likely to challenge that level again as economist grow nervous that Greece’s new government is on a collision course with the European Union.
‘Grexit’ Fears Persist
Positive data released early in the session was not enough to support the Euro as the New Greek government showed that it was serious about standing by its pledges.
‘We won’t get into a mutually destructive clash, but we will not continue a policy of subjection,’ New Prime Minster Alexis Tsipras said.
The first sign that Syriza led government is not planning to agree meekly to demands placed upon it by the EU came as it announced that it disagreed with the wider EU on tightening sanctions against Russia over the Ukraine crisis.
In a statement the government said that ‘Greece does not consent and that the announcement violated proper procedure by not first securing Greece’s agreement. The new government is looking like it will annoy the rest of the union and new foreign minister Nikos Kotzias could block the introduction of more sanctions when the EU gathers to discuss the issue on Thursday.
To introduce Sanctions the EU requires the unanimity of all 28-member governments. A Greek veto would likely break the fragile European consensus on how to deal with Russia, and could potentially rob SYRIZA of early goodwill as it lobbies for easier terms for Greece’s bailout.
Regarding the bailout, hopes were dimmed that a compromise could be negotiated after a German minister said that his nation bears no responsibility for what has happened in Greece.
‘Tsipras’s initial decisions, especially his coalition with a nationalist hooligan party, point toward an exit from the Euro. If he wanted to negotiate, he’d have teamed up with To Potami, he wouldn’t have opposed sanctions against Russia,’ said an economics professor from London School of Economics.
The Ukraine situation was also weighing upon market sentiment as heavy fighting in the east of the country continues. Speculation is building that the West will announce a new round of economic sanctions against Russia.
Market attention will now shift to tonight’s US Federal Reserve policy meeting and the release of Eurozone confidence and German inflation data on Thursday.
Confidence data is also due out of Greece and Retail Sales data is due from Spain.
