Pound Euro (GBP/EUR) Exchange Rate Slumps as Supply Chain Fears Grow
(Updated 15:30, 28/9/2021) The Pound Euro (GBP/EUR) exchange rate has continued to plummet today, as the UK’s supply chain crisis rattles GBP investors.
The UK’s chronic shortage of lorry drivers, paired with panic buying, has led to severe fuel shortages in recent days. Today, according to the transport secretary, Grant Shapps, the situation is starting to calm down. Shapps said:
‘There are now the first very tentative signs of stabilisation in the forecourt storage which won’t be reflected in the queues as yet.’
However, as Shapps hints, there is no indication of when the shortages will actually end.
Meanwhile, many commentators have warned that the lack of fuel is already disrupting healthcare workers, teachers, and businesses that rely on car travel.
As the crisis continues, the government has come under fire. Opposition MPs and industry chiefs have criticised the government for blaming the fuel crisis on the public, arguing that the supply chain issues that led to shortages have been building for months.
Critics have also hit out at the government’s offer of 5,000 temporary work visas for EU drivers, including the Welsh First Minister, Mark Drakeford. Speaking in Cardiff, Drakeford said:
‘It’s hard to imagine a government that has made a more derisory attempt to solve a problem of their own creation…
‘The idea that people are going to be willing to uproot themselves and come and work in this country for a matter of weeks only to be told by the UK government that they will be discarded again on Christmas Eve. The arrogance of it is breathtaking – it isn’t going to work.’
What seems to be most denting GBP today is the fear that the fuel crisis is merely the latest manifestation of deeper problems in the UK economy. In recent weeks, the country has experienced food shortages, a CO2 shortage, and now fuel shortages, as Brexit- and pandemic-related issues continue to cause massive disruption.
Many GBP investors may be worrying that more crises and shortages are on the way, particularly as we head towards winter.
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Pound Euro (GBP/EUR) Exchange Rate Drops on UK Fuel Crisis and German Consumer Confidence
GBP/EUR is also pressured by this morning’s consumer confidence data from Germany, which surprised economists by hitting a 19-month high, thereby boosting the single currency.
Pound (GBP) Falls amid Ongoing Fuel Outages
The Pound (GBP) has dipped against the Euro (EUR) this morning as the UK’s current fuel crisis worsens.
After the UK’s chronic shortage of lorry drivers led to some fuel outages last week, widespread panic buying has hugely exacerbated the problem.
Some analysts expect fuel supplies to return to normal in a few days’ time, however there are already concerns about the impact on businesses and homebound patients who rely on travelling care staff.
The British Medical Association (BMA) has warned that if health workers are unable to get fuel, or need to queue for hours, then vulnerable patients will suffer.
Earlier this morning Dr David Wrigley, Deputy Chair of the BMA council, told Times Radio:
‘We can’t be waiting two or three hours in a queue for fuel when we have patients to see, so we’re calling on the Government to act today, to put a plan in place and let us know what’s happening.’
In addition, the pandemic has led to a rise in mobile businesses, from home-visiting personal trainers to the boom in online shopping and deliveries. Due to fuel shortages, some smaller businesses are already having to scale back.
Tom Pugh, UK Economist at multinational accountancy network RSM, outlined how the fuel shortages could dent the economy unless they’re resolved quickly:
‘if the pumps stay dry for much longer, then the impact of people unable to go about their work and daily lives may join labour shortages, soaring energy prices and a lack of shipping containers as another drag on the economy…
‘What’s more, a shortage of fuel for trucks and delivery vans risks exacerbating the shortage of goods which has been hampering the economic recovery. This will inevitably be a drag on GDP growth in September compared to if there were no shortages.’
Pugh also warned that surging fuel prices will push inflation up even higher next month, adding to the cost-of-living squeeze and fears of stagnation.
Euro (EUR) Climbs on German Consumer Confidence
The Euro, on the other hand, is strengthening against most of its rivals today after consumer confidence in Germany unexpectedly improved.
The German GfK consumer climate indicator for October was forecast to fall from -1.1 to -1.6, which would have been its third consecutive drop and its worst level in four months. Instead, the score climbed to 0.3 – its best level and first positive score since the pandemic began.
Economic and income expectations grew, as did morale around the country’s falling infection rate.
However, the Euro’s upside may be limited. Yesterday, European Central Bank (ECB) President Christine Lagarde made some dovish remarks, reiterating her view that current high inflation is temporary and will not persist into next year.
This contrasts with the Bank of England’s (BoE) stance, with a UK rate hike expected early 2022, and may be putting a lid on EUR’s gains against GBP.
Pound Euro Exchange Rate Forecast: ECB Speeches and UK Crises Eyed by Investors
With a handful of ECB policymakers due to speak today, EUR investors may be watching for fresh impetus. However, after Lagarde’s recent dovish remarks, their hopes may not be high.
GBP investors, meanwhile, will be paying close attention to the UK’s supply chain and fuel crises to see how they unfold. If the government acts decisively and confidence is restored, we could see the Pound regain some ground.