Pound Euro Exchange Rate Continues Collapse to Hit Four-Month Low

Pound Euro Exchange Rate Slides to Four-Month Low as Three More Energy Firms Fold

(Updated 17:00, 29/9/21) The Pound Euro (GBP/EUR) exchange rate has continued its collapse today, slumping to a four-month low of €1.15529.

The continued weakness comes as three more UK energy suppliers have gone bust due to the European energy crisis, which is hitting the UK particularly hard.

Igloo Energy, Symbio Energy and Enstroga are the latest companies to fold, bringing the total number of failed energy suppliers up to 12 this year.

The news has added to concerns that the country’s energy crisis is only going to get worse as we approach winter. And coming off the back of a fuel supply crisis, it presents a rather bleak outlook for the UK economy.

Original article continues below:

Pound Euro Exchange Rate Rangebound as Fuel Crisis Starts to Improve 

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range near a two-month low today, as the UK’s fuel crisis shows signs of normalising. 

Meanwhile, a better-than-expected economic sentiment score for the Eurozone is offset by Germany’s political uncertainty. 

Pound (GBP) Muted amid Supply Chain Fears 

The Pound (GBP) remains subdued today as fears over the UK’s supply chain crisis persist, despite signs that the country’s fuel situation is beginning to stabilise

A government source has said that around 16% of fuel forecourts are now fully supplied, compared with 10% over the weekend and 40% when supply and demand are at normal levels. 

The government will also deploy army drivers to deliver fuel in the coming days to tackle remaining shortages. 

However, there are fears that more shortages and disruption could be on the way, as the UK supply chain crisis continues. 

On Tuesday, Boris Johnson sought to reassure the public that his government was prepared, while admitting that the country faced challenges in the run-up to Christmas. Johnson said: 

‘What we want to do is make sure that we have all the preparations necessary to get through until Christmas and beyond – not just in the supply of the petrol stations, but all parts of our supply chain. 

‘You’re seeing the global economy really sucking in a huge amount at the moment, for gas, for lorry drivers. There are shortages around the world … but we’ve got to make sure we have everything in place as the recovery continues, and that’s what we’re doing.’ 

Despite the PM’s words, GBP investors are concerned that continued disruption will stifle the UK’s economic recovery, and this is keeping Sterling on the back foot this morning. 

That said, a bigger-than-expected rise in UK consumer credit may be helping to prevent further losses for the Pound. Consumers borrowed £0.4bn in August, beating forecasts of £0.3bn. This figure could indicate higher consumer confidence and spending, thereby contributing to UK economic growth. 

Euro (EUR) Holds Near Two-Month High on Strong Data 

Meanwhile, the Euro (EUR) is holding near a two-month high against the Pound today amid an unexpected rise in economic sentiment. 

The economic sentiment indicator for the Eurozone inched higher in September, rising from 117.6 to 117.8. While the increase is only marginal, it exceeds analysts’ expectations of a drop to 116.9 and remains well above pre-pandemic levels and close to an all-time high of 119 reached in July. 

The reading was boosted by growing optimism among consumers and a rosier outlook in the manufacturing and construction sectors, although sentiment deteriorated among service providers and retailers. 

Despite this positive report, the single currency may find its upside limited by the ongoing political uncertainty in Germany. After the country’s knife-edge election on Sunday, Germany faces weeks, perhaps even months, of coalition negotiations. 

With the two leading parties having ruled out continuing their ‘grand coalition’, both will be courting the Greens and the Free Democratic Party (FDP) to form a three-party alliance. However, with significant differences in ideology and policy among the parties, finding common ground could be tricky. 

The uncertainty following the close election seems to be preventing the Euro from strengthening further today, though it is currently holding on to yesterday’s significant gains. 

Pound Euro Exchange Rate Forecast: Could the Pound Regain Ground on Central Bank Divergence? 

If the UK’s fuel crisis continues to improve over the course of the day, the Pound Euro exchange rate may be able to edge up and away from its two-month lows. However, fears over the wider supply chain crisis may continue, keeping Sterling somewhat subdued. 

A speech from Bank of England (BoE) Governor Andrew Bailey this afternoon may help to bolster GBP rates if he reiterates the bank’s hawkish stance. 

Later today there are also some speeches from European Central Bank (ECB) policymakers. With the ECB’s dovish approach diverging from the BoE’s, we could see some upward movement in GBP/EUR, depending on what the speakers say. 

Samuel Birnie

Contact Samuel Birnie