Pound Euro Exchange Rate Dented as UK’s Economic Woes Continue to Grow
(Updated 13:45, 24/9/21) The Pound Euro (GBP/EUR) exchange rate is trading on the back foot this afternoon, with the pairing having now shed a good portion of yesterday’s Bank of England-driven gains.
This comes as a shortage of HGV drivers has resulted in some petrol stations within the UK needing to close, sparking some panic buying from motorists, amidst fears of a shortage.
Whilst the UK’s Transport Secretary, Grant Shapps has said there is plenty of supply and there no need to panic buy, the news has feed into existing concerns that the UK’s economy faces considerable hurdles in the last quarter of 2021.
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Pound Euro Exchange Rate Muted ahead of German General Election
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as EUR investors brace for Germany’s impending general election.
At the time of writing the Pound Euro exchange rate is trading at around €1.1682, virtually unchanged from this morning’s opening rate.
Euro (EUR) Subdued amid German Election Uncertainty
Germany goes to the polls this weekend to elect its first new Chancellor in 16 years, so naturally trade in the Euro (EUR) is a little shaky this morning.
Angela Merkel’s guidance of the Eurozone’s largest economy has been a stabilising influence on the Euro over the past decade and a half, so it’s no surprise that EUR investors are a little nervous about a future with her.
The current frontrunner to replace Merkel is the leader of the Social Democratic Party (SPD), Olaf Scholz, who as the current finance minister, is largely seen as a ‘safe pair of hands’ by investors.
However, Scholz has not ruled out the possibility of his party forming a coalition government with the far-left DIe Linke party, a possibility which would likely come as a disappointment given it might result in less business-friendly pro-growth policies.
Economists at MUFG Bank, comment:
‘A shift to the left with Die Linke doing better than expected that points to a possible coalition with the SPD and the Greens would perhaps be the biggest surprise and could result in the initial focus being on more expansionary fiscal policy with a slower return to fiscal discipline.’
Further limiting the upside appeal of the Euro this morning is the publication of Germany’s latest IFO business climate index, which reported business morale in the Eurozone’s largest economy fell to a five-month low in September.
Pound (GBP) Consolidates Post-BoE Gains
At the same time, the Pound (GBP) appears to be in consolidation mode this morning, after spiking on Thursday in the wake of the Bank of England’s (BoE) latest interest rate decision.
The bank’s struck a notably hawkish tone yesterday, with the split for policymakers calling for an immediate cut to the bank’s quantitative easing programme narrowing, at the same time that the Monetary Policy Committee (MPC), acknowledged that surging inflation has strengthened the case for some modest monetary tightening.
This prompted GBP exchange rates to soar amidst speculation the next rate hike from the BoE could come early next year.
Pound Euro Exchange Rate Forecast: Eurozone Inflation in the Spotlight Next Week
Looking ahead to next week’s session, in addition to some lingering German uncertainty as coalition talks get underway, a key catalyst of movement in the Pound Euro (GBP/EUR) exchange rate will be the publication of the Eurozone’s consumer price index.
This is expected to report that inflation in the bloc continued to rise this month, but the question is whether EUR investors believe it is rising fast enough to force the European Central Bank (ECB) to rethink its position on monetary tightening.
Meanwhile, the Pound’s post-BoE gains could be tested next week, as concerns over the UK’s economic resilience are likely to persist.