GBP/EUR Exchange Rate Peaks as Euro Faces Selling Pressure
(Updated 17:00, 30/12/2021) The Pound Euro (GBP/EUR) exchange rate continued to firm this afternoon, topping a 22-month high as the Euro came under pressure from central bank policy divergence and a risk-on market mood.
Despite holiday-thinned liquidity conditions in global and European currency markets, the Euro succumbed to downside as the US dollar (USD) strengthened somewhat on upbeat jobs and business data. Against the Pound (GBP), EUR is a safe asset, so growing risk appetite further buoyed the currency pair.
Amidst forecasts of three interest rate hikes from the Federal Reserve in 2022 and further policy tightening from the Bank of England (BoE), the European Central Bank (ECB)’s stubbornly dovish position also off-put EUR investors.
Markets seemed to take little notice of a hawkish speech from the ECB’s Klaas Knot, who suggested the central bank could end bond buys sooner than planned if upside inflation surprises continue.
Original article continues below:
Pound Euro Exchange Rate Climbs on Risk-On Market Mood
The Pound Euro (GBP/EUR) exchange rate has firmed so far this morning and is approaching November’s yearly high. Strength in the US Dollar (USD) subdues EUR trading as a result of the currencies’ strong negative correlation.
At the time of writing, GBP/EUR is trading at €1.1904, up 0.2% from today’s opening levels.
Euro (EUR) Falters Amidst Lack of Significant EU Data
The Euro (EUR) is falling against its peers this morning as a lack of significant data from the Eurozone exposes the currency to losses.
Strength in the US Dollar amidst a cautious market mood applies downside on the single currency: the safe-haven ‘Greenback’ draws support away from perceived riskier assets in times of uncertainty.
Moreover, contrasting Covid policies in EU countries are further encouraging bearish trading. Spain and Italy have eased testing and isolation rules after health experts urged governments to rethink their policies, cautioning that the Omicron variant could paralyse the country by forcing millions to stay at home.
Commenting on divergent policies, the World Health Organization (WHO) said on Wednesday that slashing the mandatory isolation period was a trade-off between controlling transmission and keeping economies up and running.
WHO emergencies director Michael Ryan told a news conference:
‘It is a trade-off between the science and being absolutely perfect in what you try to do, but then having the minimal disruption that you can possibly have to your economy and society – and governments are struggling to find that balance.’
Pound (GBP) Struggles as Covid Situation Worsens
The Pound (GBP) is sliding against several of its peers today as Britain reported a record 183,037 new Covid-19 cases on Wednesday.
Markets wait with baited breath to see whether the government will subsequently impose more restrictions: UK Prime Minister Boris Johnson had said last week that ministers would keep the latest data under constant review to see if additional stricter measures are needed.
Meanwhile, a dramatic rise in the cost of housing has prompted the Trades Union Congress (TUC) to campaign for higher wage growth. According to head of the TUC Frances O’Grady, pay stagnation has caused a ‘wages crisis’ amidst soaring energy bills and other costs.
O’ Grady argues that British workers need a bigger pay rise after a ‘lost decade’ of wage growth under Conservative-led governments. She challenged Boris Johnson, saying:
‘After decades of real wage cuts and falling living standards, no one can seriously say working people don’t deserve a pay rise.’
GBP/EUR Exchange Rate Forecast: External Factors to Drive Movement?
Looking ahead, a lack of significant data from both the UK and the Eurozone leaves the Pound Euro exchange rate to trade on external factors.
Covid dynamics will likely be the predominant driver of movement, with politics and economic speculation potentially influencing currency trends.
Into next week, manufacturing data from Germany and the bloc could further direct GBP/EUR trading.