Pound Euro (GBP/EUR) Exchange Rate Muted amid Risk-Off Global Trade
The Pound Euro (GBP/EUR) exchange rate is struggling at the start of this week’s session as fears grow over the prospect of Russia invading Ukraine.
After making gains through the end of last week’s session, the GBP/EUR exchange rate has softened slightly on Monday to trade at €1.1932 at the time of writing.
Pound (GBP) Struggles amid Investor Flight to Safety
The Pound (GBP) is lacking significant direction on Monday as the threat of a conflict in Ukraine sours market mood.
UK GDP data released last Friday that revealed the UK economy grew 7.5% in 2021, the fastest rate since the 1940s, has limited some of Sterling’s losses.
However, the risk of a conflict in Europe sending shockwaves across the continent and disrupting economic activity is weighing on GBP sentiment.
The threat of an invasion is also increasing concerns that Russian supplies of natural gas may be disrupted, and has driven the price of natural gas to a two-week high.
Against the backdrop of a cost-of-living crisis in the UK, the threat of the energy crisis worsening due to disruption to energy supplies is fuelling fears over the impact on the UK’s economic outlook.
Meanwhile, talks between the UK and EU over the Northern Ireland Protocol remain at an impasse following more in person talks between the UK Foreign Secretary and European Commission Vice President Maros Sefcovic.
The ongoing stalemate has led to Democratic Unionist Party (DUP) leader Sir Jeffrey Donaldson to say that he does not expect ‘an agreement will be reached this side of an election (in May) to remove the Irish Sea border.’
Following UK trade figures that revealed UK exports to the EU dropped 12% in 2021 when compared to trading conditions without the pandemic and after Brexit 2018, the prospect of more trade disruption could also weaken UK economic activity.
Euro (EUR) Dented by Escalating Ukraine Tensions
The Euro (EUR) is trading mixed this morning, as the single currency strengthens against its more risk-sensitive peers but dips against safe-haven currencies such as the US Dollar.
The threat of a Russian invasion of Ukraine as soon as Wednesday has spooked markets and caused investors to favour safe-haven assets.
Escalating tensions between Russia and NATO has led to several countries advising their nationals to leave Ukraine, and the US to warn that aerial bombardments could start ‘at any time’.
At the same time, Ukraine has called for a meeting with Russia within 48 hours for an explanation of its plans and the reason for over 100,000 soldiers near Ukraine’s border.
European leaders continue to pursue diplomatic channels with Russia as German chancellor Olaf Scholz travels to Kiev and Moscow.
Scholz has warned that a Russian attack would lead to ‘tough sanctions that we have carefully prepared and which we can immediately put into force.’
Pound Euro Forecast: UK Wage Growth Data to Heighten Cost-of-Living Crisis?
The Pound Euro exchange rate may come under more pressure in the first part of this week amid the threat of a Russian invasion and high-impact economic data releases.
UK employment data released on Tuesday morning may dent the Pound at the start of the week.
While forecasts point to the unemployment rate in the three months up to December remaining unchanged at 4.1%, slowing wage growth in the same period to 3.9% from 4.2% may weaken GBP exchange rates.
Amid the mounting cost-of-living crisis in the UK, wage growth falling further behind inflation and driving a decline in real terms pay will likely add to concerns over the UK’s economic outlook.
Meanwhile, German ZEW economic sentiment surveys for February released tomorrow may provide EUR exchange rates support. Forecasts point to morale improving in the Eurozone’s powerhouse economy, although Russia-Ukraine tensions may limit the upside in the index.
However, an expected widening of the Eurozone’s trade balance for December may weigh on EUR sentiment, while the bloc’s GDP second estimate for the fourth quarter looks likely to confirm growth slowed to 0.3%.