by David Pewes
The pound sterling has fallen -0.92% versus the euro today to 1.3292, its weakest since January 23rd, or 6 days. However, sterling still remains just 2 cents below its highest in 7 years against the common currency, or since January 25th 2008.
Sterling has fallen, because the financial markets are increasingly betting that Greece will stay in the Eurozone, in spite of last Sunday's election of extreme left-wing party Syriza to Greece's government. This has weakened the pound versus the euro, as international investors return assets to the common currency bloc.
International financial markets think that Greece won't leave the euro, chiefly because of the potentially disastrous consequences to Greece's economy. For instance, were Greece to revive the drachma, its currency before the euro, it would immediately plummet in value. This would spur hyperinflation across Greece, both wiping out people's savings, and make everyday goods and services far less affordable.
Moreover, were Greece to exit the Eurozone, Greece's banks would no longer have access to emergency funding from the European Central Bank. Greek banks currently owe some €44 billion to the ECB, suggesting that, were Greece to go it alone, its banks would go out of business, and there'd be a bank run, as people rushed to get their money out.
Lastly, sterling has also fallen versus the euro today, because 75.0% of Greeks want to stay in the euro, according to a recent Bloomberg poll. This greatly reduces the odds of Greece's "accidentally exiting" the common currency.
