Pound Euro (GBP/EUR) Exchange Rate Continues to Fall
(Updated 15:45, 22/2/22) The Pound Euro (GBP/EUR) exchange rate continued to slide today, dropping from a 19-day high to a 6-day low. Comments from Bank of England (BoE) Deputy Governor Dave Ramsden failed to support the Pound (GBP).
In a keynote speech at the National Farmers’ Union annual conference, Ramsden indicated that while further rate hikes are likely in the coming months, the medium-term outlook is far less clear. Ramsden said:
‘The additional uncertainty around these assumptions makes it particularly difficult to make predictions about where monetary policy might be headed in the medium term. In the near term as I have set out some further tightening seems likely to be needed… But as the alternative energy scenario illustrates, there are also downside risks to inflation ahead. And as the alternative Bank Rate scenario shows, there are also risks from tightening monetary policy too much. The energy price shock has created a particularly challenging trade-off for the MPC to manage, between strong inflation and weakening growth. We will need to remain watchful and responsive to events as they unfold.’
The Deputy Governor also stressed that tightening would likely be ‘modest’.
Ramsden is one of the most hawkish members of the Monetary Policy Committee (MPC), and one of the four who voted for a rise of 50 basis points at the last interest rate decision. As such, these comments seem particularly dovish.
In addition, markets have been pricing in a much more aggressive pace of rate hikes from the BoE. But Ramsden’s cautious talk of ‘modest tightening’ has deflated expectations somewhat.
At the time of writing, GBP/EUR is trading at €1.196, down 0.5% from today’s opening level.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Dips amid UK Budget Figures and Russia-Ukraine Crisis
The Pound Euro (GBP/EUR) exchange rate stumbled this morning, despite Russia moving troops into Ukraine.
Concerns over the UK’s cost-of-living crisis weigh on the Pound (GBP) following the latest snapshot of the country’s public finances. Meanwhile, strong German data may be boosting the Euro (EUR).
Pound (GBP) Slumps despite UK Budget Surplus
The Pound tumbled at the start of today’s session after the UK’s public sector net borrowing printed lower than expected.
The UK government recorded a budget surplus of £2.9bn last month – the first since the pandemic began. However, the figure is below forecasts of £3.5bn and £7bn smaller than in January 2020.
January is typically a month when government revenue pours in – usually from self-assessed taxes – leading to a surplus. However, spending is still above pre-pandemic levels and debt interest payments have surged higher due to soaring inflation.
Commenting on the figures, Rishi Sunak, Chancellor of the Exchequer, said:
‘We provided unprecedented support throughout the pandemic to protect families and businesses and it has worked, with the UK seeing the fastest economic growth in the G7 last year.
‘But our debt has increased substantially and there are further pressures on the public finances, including from rising inflation.
‘Keeping the public finances on a sustainable path is crucial so we can continue helping the British people when needed, without burdening future generations with high debt repayments.’
Sunak’s comments hint at a tightening of the public purse strings at next month’s budget. Following high pandemic-era spending, the government now wants to reduce expenditure and bring down debt.
This in turn has increased concern over the UK’s cost-of-living crunch. Households are facing rising energy bills and higher taxes when the new financial year begins in April, which many economists believe will slow the UK’s economic recovery.
Euro (EUR) Firms despite Russian Incursion into Ukraine
Meanwhile, the Euro strengthened against the Pound this morning, despite Russia moving troops into eastern Ukraine.
Last night, Russian President Vladimir Putin officially recognised the two separatist states in eastern Ukraine. He then ordered soldiers into the region on ‘peacekeeping duties’.
The strength in the Euro seems to come from investors buying the dip after EUR/GBP dropped overnight to its lowest level since the start of the month.
Better-than-expected data from Germany may also be supporting the single currency today. The Ifo business climate indicator jumped to 98.9 this month, a five-month high and much better than the 96.5 forecast, as morale recovered in Europe’s largest economy.
Pound Euro Exchange Rate Forecast: Can EUR Hold its Gains?
Looking ahead, it’s yet to be seen whether the Euro can hold on to its gains. The tensions between Russia and the West have weighed heavily on the single currency in recent weeks as war in Europe would likely hurt the Eurozone economy. As the situation unfolds, we could see EUR turn south again.
GBP investors will be looking ahead to a speech from Bank of England (BoE) Deputy Governor Dave Ramsden later this morning. Ramsden is one of the four members of the nine-strong Monetary Policy Committee (MPC) who voted for a steeper rate hike of 50 basis points at the BoE’s last meeting. As such, his comments are likely to be hawkish and could therefore boost the Pound.