Pound Euro (GBP/EUR) Exchange Rate Reverses Early Losses following UK Data
(Updated 11:45, 1/3/22) After initially dipping, the Pound Euro (GBP/EUR) exchange rate has regained the upside.
The UK’s final manufacturing PMI printed above preliminary estimates to hit a seven-month high. The uplift in UK manufacturing activity came amid stronger domestic demand. Meanwhile, supply-side pressures – such as raw materials shortages and global disruption – eased. This boosted the Pound (GBP), allowing it to regain earlier losses.
However, the ongoing war in Ukraine could continue to infuse the pair with volatility. We may see more movement as the day unfolds.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Slips but Euro Remains Subdued
The Pound Euro (GBP/EUR) exchange rate slipped as today’s European session began. Russia’s attacks on Ukraine seem to be intensifying, which is worrying markets.
However, the Euro (EUR) remains pressured after the EU announced tough sanctions over the weekend. Many analysts believe that the Eurozone economy will be hit particularly hard.
Pound (GBP) Dips amid Reports Russia is Targeting Civilians
The Pound (GBP) dropped as this morning’s session opened, despite Russian and Ukrainian delegates preparing for their second round of negotiations. Even though peace talks are ongoing, Moscow continues to bombard Ukrainian targets with missile and artillery strikes.
Civilian casualties are rising. Mykhailo Podolyak, a Ukrainian presidential adviser, said that Russia is deliberately targeting civilian infrastructure to demoralise Ukrainians:
‘The veil has come down. Russia is actively shelling city centres, launching direct missile and artillery strikes on residential areas and administration sites…
‘Russia’s goal is clear – mass panic, civilian casualties and damaged infrastructure. Ukraine is fighting honourably.’
Meanwhile, a huge Russian military convoy is crawling towards Kyiv. The line of armoured military vehicles stretches for around 40 miles. Analysts expect the siege of Ukraine’s capital city to intensify in the coming days.
With Russia’s aggressive actions seemingly at odds with ongoing peace talks, markets are rattled. These attacks are likely to harden the resolve of the West and Ukraine, while also suggesting that Russia is not genuinely seeking peace. As a result, the riskier Pound slipped against the safer Euro.
Euro (EUR) Edges Higher but Can’t Claw Back Losses
Meanwhile, the Euro edged higher this morning despite the ongoing war in Ukraine.
Russia’s invasion will have significant consequences for the Eurozone. Ukrainian refugees are fleeing the conflict into EU countries, and experts expect the economic fallout from the sanctions targeting Russia to be particularly damaging in Europe.
The Euro has shown some surprising resilience amid the war. However, it fell sharply as this week’s trading began on Sunday evening GMT. The severe sanctions announced over the weekend sparked a selloff in EUR as traders feared the impact on Eurozone growth.
While the Euro ticked higher against the Pound this morning, it remains well below the level it reached at the end of last week’s trade.
Pound Euro Exchange Rate Forecast: Uncertainty Remains
Looking ahead, the Russia-Ukraine war will likely continue to impact the Pound Euro pair. As Russia’s invasion continues, GBP/EUR may remain volatile. Any indication that the situation is deteriorating could weigh on the riskier Pound more than the Euro.
Other nuanced elements of the conflict could also come into play, however, such as the worsening refugee crisis in north-eastern Europe or the potential economic fallout.
In addition, economic data could come into play. This morning, the Eurozone’s final manufacturing PMI printed lower then preliminary estimates while the UK’s printed higher. UK manufacturing activity hit a seven-month high amid stronger domestic demand and easing supply-side pressures.