Pound Euro (GBP/EUR) Exchange Rate Wobbles in Choppy Trade
(Updated 15:00, 14/12/21) The Pound Euro (GBP/EUR) exchange rate has wavered today as both currencies face headwinds. At the time of writing, GBP/EUR is trading at around €1.171, virtually unchanged from this morning’s opening level.
Sterling initially slipped this morning as Omicron fears outweighed some strong UK jobs data. But a rebound in the US Dollar (USD) has put pressure on the Euro (EUR) due to the currencies’ negative correlation. This has allowed the Pound (GBP) to recoup its losses.
However, it remains to be seen whether Sterling can avoid another slip as storm clouds seem to be gathering for the UK economy.
The International Monetary Fund (IMF) has warned that the UK may need to reintroduce the furlough scheme if Omicron hits the economy.
The IMF also said that post-Brexit trade issues are going to increase next year, echoing comments from the Institute of Directors yesterday. Kristalina Georgieva, head of the IMF, commented:
‘Trade with the EU has dropped significantly and we expect there will be more impact ahead as the custom checks are going to be introduced in UK in the beginning of next year.’
In addition, the government’s impressive booster rollout will cost billions of Pounds. Chancellor Rishi Sunak has indicated that he may need to implement further cuts or tax rises to pay for the extra shots, as he left very little headroom in his autumn budget. And with a cost-of-living crisis looming, a tighter public purse could hit households.
Yet the Euro faces challenges of its own. Markets expect the Federal Reserve to speed up its tapering process at tomorrow’s interest rate decision. Such a move could boost USD and weigh heavily on the single currency. EUR investors are trading gingerly today, with the upcoming Fed decision darkening the market.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Slips, but Outlook is Uncertain
The Pound Euro (GBP/EUR) exchange rate has softened so far today as UK Omicron concerns undermine some strong jobs data.
However, investor sentiment around the Euro (EUR) is also mixed as Germany’s economic situation worsens. And market repositioning ahead of this week’s rate decisions is causing some uncertainty. As a result, we could see the Pound Euro pair waver today.
Pound (GBP) Undermined by Omicron Concerns
The Pound (GBP) has slipped this morning, despite the UK’s latest employment figures showing that the labour market continues its strong recovery following the end of furlough.
The UK unemployment rate dropped from 4.3% to 4.2% in the three months to October, as expected. The number of people claiming unemployment benefits fell by 49,800 in November – much better than forecasts of a 20,000 fall. This was the nineth consecutive month of decline. In addition, the latest estimate indicates that there were 257,000 more payrolled employees in November.
Although the end of the furlough scheme could cause some redundancies in months to come, the latest data paints a positive picture of the post-furlough labour market.
However, ongoing concerns around the Omicron variant have blunted the data somewhat. Economists are worried that, while pre-Omicron job growth was strong, new restrictions will present a significant setback to the UK’s recovery.
This evening parliament will vote on the government’s Covid Plan B restrictions, with Boris Johnson facing a huge rebellion from within his own party.
Meanwhile, the NHS is gearing up for a surge in Covid patients. The health service has said it is facing a level 4 ‘national incident’ as hospitals prepare to discharge patients to make room for those hospitalised with Omicron.
Euro (EUR) Firms amid Drop in USD
The Euro (EUR) has managed to gain against Sterling so far today, boosted by its negative correlation to a weakening US Dollar (USD).
In addition, the latest industrial production figures from the Eurozone are also on the single currency’s side. Output grew by 1.1% in October. Although this was marginally below economists’ expectations of a 1.2% rise, the reading still shows a decent expansion following two consecutive months of contraction.
EUR’s gains may be limited, however, as the outlook for the German economy looks bleak. The Ifo slashed its GDP growth forecast for 2022 to 3.7% from 5.1% in September. Surging inflation, dwindling growth, supply chain issues and a fourth wave of Covid are threatening to cause a winter recession in Europe’s largest economy.
Pound Euro Exchange Rate Forecast: Uncertainty Ahead as Investors Await Rate Decisions
Looking ahead, we may see some repositioning as investors prepare for the upcoming interest rate decisions. The Federal Reserve, European Central Bank (ECB) and Bank of England (BoE) all meet over the next few days. This may make the Pound Euro exchange rate move in some unexpected ways.
In addition, the positive data and worrying Covid and economic news has created a mixed sentiment around both currencies. GBP/EUR could waver because of this, or one currency may get the upper hand if a headwind dies down.