Pound Euro (GBP/EUR) Exchange Rate Extends Downside amid Easing Russia-Ukraine Tensions
(Updated 16:00, 15/2/22) The Pound Euro (GBP/EUR) exchange rate has continued to fall through today’s session as the threat of an imminent Russian invasion of Ukraine recedes somewhat.
Today, Russia said that it was withdrawing some troops from the Ukraine border as they have finished their military drills. Although intelligence suggests that this may not be true, EUR investors are nonetheless relieved, with a Russian invasion seeming less likely.
Russia has also displayed receptiveness to finding a diplomatic solution. German Chancellor Olaf Scholz met with Vladimir Putin today to discuss the situation.
Meanwhile, the Pound (GBP) has been under pressure due to growing concern over the UK’s cost-of-living crisis.
This morning’s employment data revealed that wage growth is lagging behind inflation, adding to fears that UK households will face a significant squeeze on income this year.
With more interest rate rises likely on the way, as well as price increases and higher taxes, many people could find themselves in financial hardship.
Stephen Evans, CEO of the Learning and Work Institute, commented:
The cost of living crisis is setting in, with real wages falling in the last quarter of 2021. This is only likely to worsen with current inflation and rising energy prices – the Government must do far more to help protect living standards.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Dips as Russian Withdrawal Cheers EUR Investors
The Pound Euro (GBP/EUR) exchange rate has slipped this morning, as reports that Russian troops are withdrawing from the Ukrainian border cheer EUR investors. Meanwhile, GBP investors are digesting mixed UK jobs data.
However, recently published Eurozone data printed below economists’ expectations. This could provide GBP/EUR with some support as the morning unfolds.
Euro (EUR) Firms on De-Escalation of Russia-Ukraine Crisis
The Euro (EUR) is heading higher against the Pound (GBP) this morning, as Russian troops on the Ukrainian border seem to be returning to their bases.
The withdrawal of troops could represent a Russian de-escalation. However, political analysts are responding cautiously to the news. Russia has withdrawn troops before, only to redeploy soldiers at a later date, and satellite images show no significant change in Russian forces.
Investors, on the other hand, seem more optimistic.
A Russian invasion of Ukraine would be destabilising for the EU and could slow economic growth in the Eurozone. European stocks would likely suffer and already-elevated energy prices could rise further.
In addition, sanctions on Russia could hit European banks that lend to Russian borrowers, as they could disrupt loan repayments.
Therefore, the apparent de-escalation is removing a key headwind for the Euro.
Pound (GBP) Subdued following Mixed Jobs Data
Turning to the Pound, Sterling is muted following mixed UK employment reports.
The country’s unemployment rate held at 4.1% in the three months to December. This is the first time in six months that the rate hasn’t dropped.
Meanwhile, the claimant count change, unemployment change and average earnings all came in higher than expected. However, the number of people in work in the UK fell by 39,000 in the fourth quarter of 2021.
Economists are also concerned that wage growth is lagging behind inflation in the midst of a cost-of-living crisis.
There are some factors cushioning GBP’s downside, however. Bank of England (BoE) rate hike bets continue to underpin the Pound, while the improving market mood favours the riskier Sterling over the safe-haven single currency.
Pound Euro Exchange Rate Forecast: Russia-Ukraine Crisis in the Spotlight
The Russia-Ukraine crisis could continue to dominate markets today. As more details emerge regarding the withdrawal of Russian troops, GBP/EUR could shift.
If the move represents a significant de-escalation of the crisis then the Euro could continue to firm. However, if the bulk of Russian forces remain on the Ukrainian border then EUR investors may lose confidence.
Recent Eurozone economic data could also impact GBP/EUR. At the time of writing, Germany’s ZEW economic sentiment index and the Eurozone’s balance of trade figures have just been published.
The former improved, though less than expected, while the Eurozone’s trade deficit widened further than was forecast. These results could weigh on EUR.