Pound Euro Exchange Rate Makes Modest Gains as Energy Fears Ease

Pound Euro (GBP/EUR) Exchange Rate Ticks Higher as UK Confident on Energy Supplies

(Updated 15:00, 7/10/21) The Pound (GBP) has gained a slight edge over the Euro (EUR) in today’s session, after business secretary Kwasi Kwarteng said the UK government was confident that the country’s energy supplies would meet demand this winter.

Speaking at the Energy UK conference, Kwarteng sought to allay fears that the current gas crunch could cause blackouts over the winter season.

He also struck an optimistic tone over the future of green British energy, saying:

‘The UK so far, as many of you know, has made great progress in diversifying our energy mix. But we are still very dependent, perhaps too dependent, on fossil fuels and their volatile prices…

‘Relying on homegrown power generation will protect consumers from gas price fluctuations.

And it will, in the long run, bring down bills, we will use the wealth of Britain’s natural resources to deliver cleaner, cheaper power.’

This, paired with cooling gas prices, seems to have slightly eased anxiety over the energy crisis today, allowing the Pound to edge higher.

However, concerns still remain, and Kwarteng also warned that more energy suppliers could fold. As such, Sterling’s upside is likely limited.

At the time of writing, the Pound Euro (GBP/EUR) exchange rate is trading at around €1.1775, up 0.16% from today’s opening level.

Original article continues below:

Pound Euro Exchange Rate Wavers amid Headwinds for Both Sides 

The Pound Euro (GBP/EUR) exchange rate is trading mostly sideways today, as the UK’s energy concerns persist despite cooling gas prices and German industrial data misses forecasts again. 

The GBP/EUR pair is currently trading around €1.1755, virtually unchanged from its opening level, having bounced off this morning’s low of €1.17345. 

Pound (GBP) Subdued as Energy Concerns Persist 

The Pound (GBP) is wavering in a narrow range against the Euro (EUR) this morning as a lack of notable UK data leaves Sterling without a clear direction. 

Meanwhile, continued concerns over the UK’s energy crisis are offset by cooling gas prices and a slight increase in risk appetite. 

Gas prices in Europe have cooled after Russian President Vladimir Putin signalled yesterday that he may increase gas supplies to Europe and stabilise the energy market. 

The comments saw gas prices fall from record highs during a wild day of trading: contracts for November delivery surged by almost 40% before closing 9% lower. 

With gas anxiety easing, risk appetite has improved and European equity markets have recovered. This has supported the Pound Euro exchange rate, as Sterling is seen as a riskier currency than the Euro. 

Yet this is somewhat offset by concerns over the UK’s domestic energy situation. A fire that damaged a key UK power cable in September has caused further damage to the country’s backup electricity supply cushion, which was already reduced by the closing of nuclear reactors and gas plants. 

In addition, industry leaders are criticising the UK government’s approach to the energy market. Dale Vince, founder of Ecotricity, has accused the government of ‘killing energy companies’ by maintaining the retail price cap but not introducing a wholesale price cap, arguing the government should ‘either let [energy] be a free market, or nationalise it’. 

Euro (EUR) Muted following Poor German Data 

The Euro, meanwhile, is also struggling for direction today following some poor data from Germany. 

German industrial production in August contracted by 4%, far worse than the 0.4% fall that economists had expected. The dip in production was caused by rising energy prices and the ongoing global supply chain crisis, with some analysts warning that a bottleneck recession seems more likely. 

The data follows Germany’s abysmal factory orders report yesterday, which printed at -7.7% versus the -2.1% forecast. 

However, it may be that EUR investors expected today’s data to print below expectations after yesterday’s miss. This could have taken the edge off the negative report, allowing the Euro to trade sideways with the Pound. 

Pound Euro Exchange Rate Forecast: UK Energy Crisis in the Spotlight 

As the day unfolds, the UK’s domestic energy issues could drive further movement in the Pound Euro exchange rate. 

The business and energy secretary Kwasi Kwarteng is about to speak at the Energy UK conference. If he can reassure industry that the government has the crisis under control then this could support Sterling. 

However, his speech comes amid pleas from energy-intensive businesses urging the government to consider ‘emergency measures this winter’ as rising prices could lead to factory shutdowns. 

Will Kwarteng announce measures to protect industry, or will ongoing concerns continue to pressure the Pound?