Pound Euro Exchange Rate Extends Downside as NHS Faces Mounting Pressure

Pound Euro (GBP/EUR) Exchange Rate Continues Fall on Covid Concerns

(Updated 15:30, 5/1/21) The Pound Euro (GBP/EUR) exchange rate has continued its downward trajectory through today’s session as Covid worries weigh on GBP sentiment.

Although the UK has avoided further restrictions so far, pressure is mounting on the NHS. Covid-related staff absences have led to multiple NHS trusts declaring critical incidents, with hospitals and ambulance services asking retired workers and staff on annual leave to help keep vital services running.

In addition, hundreds of care homes are no longer accepting new admissions due to Omicron outbreaks and staff shortages. This is putting further pressure on the NHS, as hospitals are struggling to discharge some patients.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Heads Lower as Omicron Fears Grow

The Pound Euro (GBP/EUR) exchange rate has wavered in a tight range so far this morning and is trending downwards at the time of writing. 

The downside comes as Covid concerns once again weigh on Sterling, as staff absences hit the NHS. Meanwhile, the Euro (EUR) also faces headwinds following a worrying December PMI. 

Pound (GBP) Wobbles as Covid Hammers the NHS

The Pound (GBP) is facing some challenges this morning as surging Omicron cases cause havoc in the National Health Service. 

A softer risk appetite today is also drawing support away from the perceived riskier Pound and towards the safe-haven Euro. Markets have been optimistic about the Omicron variant so far this year, but uncertainty still remains. 

In the UK, confirmed daily Covid cases rose to 218,724 yesterday. Hospitalisations have risen sharply alongside infections, despite reports that the Omicron variant causes less severe symptoms than Delta. 

The UK government has so far held back from tightening Covid measures. As Omicron is less dangerous than Delta there are fewer relative cases of serious illness. As a result, intensive care units are under far less pressure than they were during last winter’s wave of infections. 

However, many fear that as the new strain spreads through the older population, hospital admissions will rise steeply. In addition, Covid-related staff absences are causing huge disruption in other parts of the NHS, with many NHS trusts declaring ‘critical incidents’ as a shortage of workers jeopardises vital services. 

As a result, the Pound Euro exchange rate is easing off its near two-year highs today. 

Euro (EUR) Undermined by Poor PMI 

Meanwhile, the Euro is also under pressure today after business activity in December slowed to a nine-month low. 

The final services PMI for the Eurozone came in at 53.1, a little lower than preliminary estimates of 53.3 and down from the previous month’s score of 55.9. Total economic growth slowed to 53.3 in December (a score of 50 separates contraction from expansion). 

The slowdown came as a resurgence in coronavirus cases dented consumer spending, with tourism and other services hit particularly hard. 

Joe Hayes, Senior Economist at IHS Markit, the group that compiled the report, said: 

‘Amid a resurgence of COVID-19 infections across the euro area, growth slowed to the weakest since March in December. In Germany, where measures to combat COVID-19 have been more stringent than other monitored euro area countries, levels of economic activity broadly stagnated in December… 

‘The spread of the Omicron variant had a particularly profound impact on the services sector, reflecting renewed hesitancy among customers due to the novel strain of the virus.’ 

Pound Euro Exchange Rate Forecast: Pair to Waver Today? 

As the day unfolds, the Pound Euro pair may continue to fluctuate somewhat as both currencies face headwinds. 

As long as risk appetite remains subdued, this will likely benefit the Euro over the Pound. If the market mood picks up again then we may see Sterling hold its ground or even edge higher. 

Covid news will of course continue to drive movement. If there are more headlines about the mounting pressure on the NHS, this will likely dent GBP. 

Samuel Birnie

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