Pound Euro (GBP/EUR) Exchange Rate Holds High Ground as EUR Softens
(Updated 16:00, 14/10/21) The Pound Euro (GBP/EUR) exchange rate surged to a 20-month high of €1.18247 earlier today. This was partly due to the contrast between the Bank of England’s (BoE) and the European Central Bank’s (ECB) approaches to monetary policy. The pair is currently holding close to today’s highs, trading at €1.1816.
Sterling managed to sustain its strength against the Euro (EUR) today despite some domestic headwinds. Industry leaders have warned that, without state support, a cold winter could lead to factory closures. Additionally, small energy company Daligas became the third UK energy firm to fold this week, as soaring costs continue to put suppliers out of business.
However, the Euro had headwinds of its own.
A modest uptick in the US Dollar (USD) weighed on the single currency, due to the negative correlation between the two, after the latest US jobless claims beat expectations.
In addition, a group of top German research institutes slashed growth forecasts for Germany this year. Analysts expect the Eurozone’s largest economy to grow by a mere 2.4% in 2021. Their previous prediction came in at 3.7%.
These negative factors for the Euro have helped GBP/EUR stay strong this afternoon.
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Pound Euro (GBP/EUR) Exchange Rate Strengthens on Central Bank Divergence
The Pound Euro (GBP/EUR) exchange rate has surged to a 20-month high this morning, despite concerns over the UK’s energy crisis.
The upside in GBP/EUR seems to be driven by the differing policy approaches from the Bank of England (BoE) and the European Central Bank (ECB), with expectations of an imminent BoE rate hike boosting Sterling.
Pound (GBP) Firms on Hawkish BoE despite Industry Warnings
The Pound (GBP) has managed to climb against the Euro (EUR) today, hitting a 20-month high, despite fresh warnings that the energy crunch could force British industries to shut down this winter.
In an interview last night, Sir Jim Ratcliffe – the founder of chemicals giant Ineos – warned that a particularly cold winter could see factories forced to curb activity. Ratcliffe said:
‘Economically… we’re in a bad place as it is after Covid so you don’t really need to be shutting industry down, and that’s not great for British industry if we’re telling all our customers we can’t supply them.’
His comments came as the UK steel industry called for urgent support from government to avoid a ‘full blown steel crisis’.
However, the Chancellor, Rishi Sunak, seems to have ruled out state support for industries struggling with energy costs. Speaking after a meeting with G7 finance ministers in Washington earlier this morning, Sunak said:
‘We’re prepared to work with business and support them as required. It wouldn’t be appropriate for me to comment on the particular situation of any individual company.
‘But in general I believe in a market economy, as it’s served us very well in this country. It’s not the government’s job to come in and start managing the price of every individual product.’
Despite these concerns, Sterling has surged against the Euro so far this morning, as a risk-on market mood offers GBP some support.
In addition, the Pound continues to benefit from the BoE’s hawkish stance, which stands in stark contrast to the cautious approach taken by the ECB. It may be this divergence in policy that has driven the Pound Euro exchange rate to a 20-month high.
Euro (EUR) Down on Dovish ECB
The Euro, meanwhile, is struggling against the Pound as dovish commentary from ECB officials puts pressure on the single currency.
A recent speech from the Chair of the ECB’s Supervisory Board, Andrea Enria, struck a cautious tone. Enria said that while the economic outlook in the Eurozone had improved, there were still risks to recovery.
In particular, Enria raised concerns that, within the Eurozone, asset quality was deteriorating and housing bubbles may be developing.
These words of caution from the ECB may be causing some hesitancy among EUR investors this morning.
Pound Euro Exchange Rate Forecast: Central Bank Speeches in the Spotlight
Later this morning, more speeches from central bank officials could influence the Pound Euro exchange rate.
Next from the ECB is Frank Elderson, who has voiced support for the bank’s loose monetary policy in the past. More dovish comments from Elderson could dent EUR.
Silvana Tenreyro from the BoE is also due to speak. Tenreyro is considered to be one of the more dovish members of the British central bank, so if she expresses concern over rising inflation then it could signal that a rate hike is imminent, thereby boosting GBP even higher.