Pound Euro Exchange Rate Fluctuates as Boris Johnson Faces Calls to Resign

Pound Euro (GBP/EUR) Exchange Rate Volatile amid Political Uncertainty

(Updated 15:30, 13/1/22) The Pound Euro (GBP/EUR) exchange rate has fluctuated today as mixed factors played on both currencies. GBP has see-sawed between €1.1967 and €1.1992, a difference of 0.2%.

The volatility comes in the aftermath of Boris Johnson’s apology for attending a gathering that may have broken lockdown laws. Today, Conservative MPs have either rallied around the Prime Minister or publicly called for his resignation. Many analysts suspect a motion of no confidence may be imminent.

Meanwhile, Brexit negotiations over the Northern Ireland protocol have resumed. Some are hoping that Liz Truss, the UK’s new chief negotiator, will take the chance to ‘reset’ the relationship. However, others are less sure. Earlier this week, Truss said the government will trigger Article 16 if the two sides cannot reach an agreement.

One factor potentially supporting the Pound this afternoon was the government’s decision to cut the minimum isolation period in the UK to five days. GBP investors may be hopeful that this will soften the economic disruption caused by the spread of Omicron.

Mixed economic news could also be contributing to the Pound Euro pair’s volatility. While some companies, notably Tesco and M&S, reported bumper sales in December, the UK hospitality industry took a big hit. As consumers grew more concerned over the Omicron variant they cancelled bookings and stayed at home, driving supermarket sales but hammering hospitality.

Kate Nicholls, chief executive of UKHospitality, said that many companies saw losses at what is usually a crucial period of profit:

‘December is a vital period for hospitality businesses, equal to three months’ worth of trading for many. These new figures are crippling for an industry already struggling but also spell disaster for the wider UK economic recovery, as ONS figures showed that overall growth in Q3 was driven by hospitality.’

Pound Euro (GBP/EUR) Exchange Rate Rocked by Political Uncertainty

The Pound Euro (GBP/EUR) exchange rate has fluctuated this morning as GBP investors weigh up the implications of a potential vote of no confidence in Boris Johnson.

Meanwhile, the Euro (EUR) is enjoying a weaker US Dollar (USD). But a risk-on mood and central bank policy divergence are offsetting the upside.

Pound (GBP) Wobbles as PM Could Face Leadership Challenge

The Pound (GBP) initially sank against the Euro (EUR) this morning, as markets continued to digest the implications of Boris Johnson’s apology yesterday.

The Prime Minister has faced pressure amid an ongoing scandal about potentially illegal gatherings held at 10 Downing Street during periods of strict lockdown restrictions.

Yesterday, Boris Johnson admitted that he had attended ‘socially distanced drinks’ in the Downing Street garden, where around 30 guests gathered, after a leaked email invite to the event hit the headlines. At the time, people were only allowed to socialise with one person from outside their household, as long as it was outdoors and they remained two metres apart.

Johnson apologised yesterday, claiming he believed it was a ‘work event’. But many MPs and British voters remain unconvinced.

While some Conservatives have voiced their support for Johnson, many senior Tories are publicly calling for his resignation. The PM could face a leadership challenge in the near future.

This political uncertainty is bad for the Pound, particularly at a time when Covid cases remain very high and crunch talks on Northern Ireland are resuming.

However, there are other factors supporting Sterling and causing GBP/EUR to waver.

Though still high, UK Covid cases and hospitalisations seem to have peaked.

In addition, expectations that the Bank of England (BoE) will raise its Bank Rate once again are buoying Sterling. According to CME Group, markets have priced in a 100% chance of a rate hike next month.

Euro (EUR) Enjoys USD Weakness

Meanwhile, the Euro initially edged higher against the Pound thanks to an ongoing weakness in the US Dollar (USD). USD and EUR are negatively correlated, so when USD is falling – as it is today – this often boosts the single currency.

However, the current risk-on market mood may be offsetting the Euro’s gains. The Euro is considered a safe-haven currency, while Sterling is seen as a slightly riskier asset. As such, the current upbeat sentiment among investors may be benefitting the Pound and weighing on the Euro.

Central bank divergence could also be capping the Euro. While the BoE raises rates, the European Central Bank (ECB) seems set in its dovish ways.

In the ECB’s economic bulletin, the bank seems to confirm this. The ECB argues that inflation will remain high in the near-term due to temporary factors, but expects both inflation and these factors to ease as the year goes on.

Pound Euro Exchange Rate Forecast: Sterling to Remain Subdued?

With these multiple factors pulling both currencies in different directions, we may see the Pound Euro pair continue to waver.

If risk sentiment sours, the Euro could post higher gains against the Pound. If it improves, Sterling may put up some resistance.

News about Boris Johnson’s future will likely dominate UK headlines today. If there are any new developments these could influence the Pound.

Brexit could also impact GBP/EUR for the remainder of the week. Foreign Secretary and chief Brexit negotiator Liz Truss is meeting her EU counterpart, Maroš Šefčovič, for their first face-to-face discussion about the Northern Ireland protocol today. The tone of the talks could be a dthe Pound’s movements as the week comes to a close.

Samuel Birnie

Contact Samuel Birnie


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