Pound Euro (GBP/EUR) Exchange Rate Edges up Despite UK Political Troubles
(Updated 16:15, 8/2/22) The Pound Euro (GBP/EUR) exchange rate held on to most of its gains today, despite the UK’s ongoing political turmoil.
UK Prime Minister Boris Johnson has drawn fresh criticism for his Jimmy Saville smear of the Labour leader Sir Keir Starmer after a group of protesters heckled Starmer outside of parliament yesterday. The protesters were shouting at Starmer about Jimmy Saville and one was holding a noose. Critics have called on Johnson to apologise for his comment last week, arguing that such language creates a toxic and dangerous political environment.
Johnson’s Jimmy Saville smear has been openly denounced by at least eight Tory MPs, four of whom have submitted letters to the 1922 Committee calling for a no-confidence vote. Last week, Johnson’s trusted policy chief Munira Mirza resigned over the remarks.
The ongoing uncertainty over the beleaguered PM’s premiership has caused Sterling to waver. However, the Pound Euro pair has managed to hold on to most of its gains.
At the end of the European session, GBP/EUR traded just shy of €1.187, around 0.2% up from this morning’s opening level.
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Pound Euro (GBP/EUR) Exchange Rate Climbs on Strong UK Sales Data
The Pound Euro (GBP/EUR) exchange rate is gaining ground this morning after cautious comments from European Central Bank (ECB) President Christine Lagarde put the single currency on the defensive.
Meanwhile, Sterling enjoys strong retail sales data and continued tailwinds from the Bank of England (BoE) rate hike last week.
Euro (EUR) Softens following Lagarde Comments
The Euro (EUR) seems subdued this morning after ECB President Christine Lagarde struck a cautious tone yesterday afternoon.
Last week, Lagarde triggered a sharp rise in the Euro as she did not dismiss the possibility of a 2022 rate hike following the ECB’s latest interest rate decision. Investors took this as a sign that the ECB was pivoting towards more hawkish policy action.
However, yesterday Lagarde seemingly sought to rein in rate hike bets. Speaking at a European parliamentary hearing, Lagarde said:
‘The chances have increased… that inflation will stabilise at our target. There are no signals that inflation will be persistently and significantly above our target over the medium term, which would require measurable tightening…’
She added:
‘There is a defined sequencing between the end of our net asset purchases and the lift-off date. A rate hike will not occur before our net asset purchases finish.
‘Any adjustment to our policy will be gradual.’
Markets have priced in rate hikes of around 50 basis points in total by the end of 2022, although economists don’t expect a rate rise until later in the year or early 2023. However, Lagarde’s recent comments seem to have slowed the EUR bulls.
Pound (GBP) Firms on Strong Retail Sales
Meanwhile, the Pound (GBP) is recovering from its six-week low against the Euro.
One reason for Sterling’s strength this morning could be the recent data from the British Retail Consortium (BRC). The BRC’s latest retail sales monitor report smashed forecasts, printing at 8.1% rather than the expected -0.3%.
The data looks at year-on-year retails sales, with the most recent results showing sales in January.
Helen Dickinson OBE, CEO of BRC, said:
‘It is encouraging to see such strong sales in January, even once inflation has been accounted for… Consumers prioritized home purchases, boosting the sale of household appliances, electronics and homeware. In what may be signs of a return to pre-pandemic trends, furniture was the stand-out performer in January, after transport delays in the Christmas period began to ease.’
The Pound may also be enjoying continued tailwinds after the BoE’s hawkish rate hike last week. Markets were surprised by the fact that four of the nine policymakers at the BoE voted for a steeper-than-expected rate rise of 50 basis points.
Pound Euro Exchange Rate Forecast: Headwinds to Hit the Pound?
While the Pound is firming so far today, there are a number of factors that could cause headwinds for the UK currency.
Tensions between Russia and the West continue, with talks ongoing as both sides intensify their military presences. If this starts to weigh on markets, the riskier Pound could slip back against the safe-haven Euro.
In addition, the UK’s political turmoil continues. Boris Johnson faces fresh criticism after protesters heckled Labour leader Keir Starmer yesterday. The protesters were accusing Starmer of ‘protecting paedophiles’ just days after Johnson’s Jimmy Saville smear, prompting new calls from MPs for Johnson to apologise.
The furore over Johnson’s Saville smear has seen more Tory MPs submit letters of no confidence to the 1922 Committee, increasing the chances of a motion of no confidence.