Pound to euro softens further but drying enthusiasm over Greek deal could yet prove supportive to GBP-EUR

Last Updated on Tuesday, 21 February 2012 10:13 Written by Will Peters Tuesday, 21 February 2012 10:04

The pound to euro exchange rate is 0.13% lower at 11950 while the pound to US dollar exchange rate is 0.05% lower at 1.5843.

The pound to euro exchange rate came under pressure yesterday as markets priced in the bailout, but the downside was limited.

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"So a March Greek default appears to have been averted, with Greece managing to secure a €130bn bailout. Holders of Greek bonds are to be offered a voluntary haircut of 53.5% (greater than last October’s 50% figure) and interest rates on loans to Greece over the next five years are to be set at 0.5%. The two main Greek political parties have given assurances that the €325mln spending cut package will remain in place regardless of the April elections," says Richard Driver, analyst at UK money transfer company Caxton Fx.

The key of course lies in implementation and this will only unfold over time.

There will be a Troika (ECB, EU, IMF) presence in Greece to oversee adherence to the package.

"The enthusiasm surrounding the bailout ran out fairly quickly thanks to an FT report that Greece will require another bailout before long due to a continued lack of debt sustainability," says Driver.

Meanwhile, the pound sterling remains well supported against a weaker USD but it may struggle to climb much further now.

Sterling is meeting some stiff resistance at these elevated levels of $1.5850.

The markets are still palpably nervous with regard to the Greek issue and there remains a feeling that the deal could unravel in the near-future.

"In the long-term, few investors will really believe that Greece can emerge out of its crisis without more help and the US dollar should come back into favour soon," says the Caxton Fx comment piece.

EUR/USD looks hard-pushed to make further gains having failed to push on in the wake of the deal, which should signal the end of sterling’s rally against the US dollar rally.