Pound Euro Exchange Rate Wobbles but Holds Weekly Gains

Pound Euro (GBP/EUR) Exchange Rate Wavers Shy of 23-Month High

(Updated 16:10, 28/1/22) The Pound Euro (GBP/EUR) exchange rate fluctuated today, edging lower overall by the end of the European session. However, Sterling has held on to most of its weekly gains.

The Pound Euro pair is currently trading at €1.120148, up 1.15% from Monday’s low.

The volatility came as the pair hovers near a 23-month high hit last week. Although central bank divergence is weighing on the Euro (EUR), it looks as though GBP/EUR met technical resistance as it tried to push to a new near two-year high.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Undermined by Political Jitters 

The Pound Euro (GBP/EUR) exchange rate has edged lower today, despite dire GDP data from Germany. 

The downside in GBP/EUR seems to come as political jitters continue to weigh on Sterling. However, central bank policy divergence ahead of the Bank of England’s (BoE) policy decision next week could help the Pound (GBP) recover. 

Euro (EUR) Advances despite Poor German Data 

The Euro (EUR) managed to firm against the Pound this morning, despite Germany’s GDP growth rate missing forecasts. 

Europe’s largest economy shrank by 0.7% quarter on quarter in the last three months of 2021, much worse than the -0.3% growth rate economists had expected. The contraction came as Germany tightened restrictions to curb the spread of the Omicron variant. 

The German economy has been hit hard by the pandemic, with high infection numbers and strict Covid measures denting the services sector. In addition, global supply chain disruption and rising costs have hammered Germany’s important manufacturing industry. 

Other countries in the Eurozone fared better. GDP growth in both France and Spain, the Eurozone’s second- and fourth-largest economies, respectively, printed above expectations. This could be helping to support the Euro this morning, despite Germany’s dire result. 

Pound (GBP) Softens as Political Discontent Simmers 

Meanwhile, the Pound remains pressured by the ongoing ‘partygate’ scandal, which has left Boris Johnson’s premiership hanging by a thread. 

The UK is awaiting the release of Sue Gray’s official inquiry into alleged lockdown-law-breaking parties held by government officials. Many expected the report to have been published earlier this week, but its release is delayed. 

The contents of the report could be politically fatal for the embattled Prime Minster. Opposition MPs, and even some Conservative MPs, have openly called for Johnson’s resignation. Meanwhile, rumours abound that a significant number of Tory rebels are conspiring to trigger a motion of no confidence. 

Some analysts believe that the UK government is paralysed by the scandal, leaving it unable to govern effectively. This political turmoil seems to be weighing on Sterling this morning. 

Pound Euro Exchange Rate Forecast: Sterling to Fight Back on BoE Rate Hike Bets? 

Looking ahead, it’s uncertain whether EUR will be able to maintain this morning’s upside. 

The Euro has suffered from its negative correlation to a stronger US Dollar (USD) following the Federal Reserve’s hawkish hold at Wednesday evening’s policy meeting. 

The Fed announcement also highlighted policy divergence between the European Central Bank (ECB) and its more hawkish counterparts – the Fed and the BoE. 

With traders pricing in a 100% chance of another rate hike at the BoE’s meeting next week, Sterling could still make a comeback. 

Samuel Birnie

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