Pound Euro (GBP/EUR) Exchange Rates Zigzag amid Mixed Market Mood
(Updated 16:00, 8/3/22) The Pound Euro (GBP/EUR) exchange rate wavered through today’s session as risk appetite shifted. Though the Euro (EUR) has traditionally been a safe-haven currency, the Eurozone economy’s exposure to the Russia-Ukraine crisis has left EUR sensitive to risk sentiment.
The shifting market mood came as key Ukrainian cities began evacuating civilians. Analysts were worried that Russia would once again breach the ceasefire agreements, which tempered any optimism. Indeed, during the evacuation efforts, Ukraine accused Russia of shelling the agreed humanitarian corridors.
However, it seems that most of the humanitarian corridors have remained open to Ukrainians fleeing their besieged cities.
Another element cheering markets and preventing a risk-off mood were reports that the EU will raise fiscal stimulus through a joint-bond sale. The funds raised through the debt will help the bloc transition away from Russian energy and fortify its military defences.
The shifting risk appetite has been evident in the European equity markets, with the STOXX 600 and FTSE 100 wavering through today’s trade.
GBP/EUR has traded between €1.20725 and €1.20101, moving sideways overall.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Wavers as Risk Appetite Shifts
The Pound Euro (GBP/EUR) exchange rate fluctuated this morning, wavering by more than half a cent and heading lower overall.
The turbulence comes as news from Ukraine continues to cause volatility. Meanwhile, reports that the EU is considering further economic stimulus boosted both the Euro (EUR) and, to a lesser extent, the Pound (GBP).
Euro (EUR) Firms on Reports of Fiscal Stimulus
The Euro has found some support today amid reports that the EU is considering a joint-bond sale. The sale could potentially raise a significant amount of debt which the bloc would then use for crucial energy and defence spending.
The Russia-Ukraine war has pushed the Euro to multi-year lows recently, and defence and energy are two key factors behind the slump.
Firstly, some analysts fear that Russia’s invasion of Ukraine is only the beginning. If Putin is able to take and hold Ukraine (which looks increasingly unlikely) he may set his sights on the Baltic states. Increased conflict in or near the EU would further destabilise the Eurozone economy.
Secondly, Europe’s energy system is dependent on Russian oil and gas. Surging energy prices have pushed Eurozone inflation to record levels and caused disruption over the winter months.
By raising further fiscal stimulus, the EU will hopefully be able to cushion the economic and geopolitical impact of the war. The bloc could transition away from Russian energy imports and fortify its military defences.
In response to the reports, European stocks and the Euro both rose higher.
Pound (GBP) Wavers amid Mixed Market Mood
The risk-sensitive Pound is also enjoying the subsequent uptick in risk appetite. However, the reports are primarily supporting the Euro, causing GBP/EUR to waver lower.
Meanwhile, risk sentiment related to the Russia-Ukraine conflict is mixed as Russia has reportedly opened humanitarian corridors from key Ukrainian cities. Evacuations from the besieged cities of Kyiv, Cherhihiv, Sumy, Kharkiv and Mariupol are reportedly underway.
Markets seem cautious, however, as previous attempts to open humanitarian corridors have failed due to ongoing attacks by the Russian military. In addition, the Ukrainian government believes that Russia will attempt to intervene in the evacuations and redirect refugees to Russia or Russia-occupied Belarus.
GBP investors are understandably hesitant: they welcome the ceasefire but worry whether or not Russia will uphold it. As a result, risk sentiment is mixed.
Pound Euro Exchange Rate Forecast: More Volatility Ahead?
As the session continues, headlines from Ukraine will continue to impact the Pound Euro pair. If the civilian evacuations are successful then risk sentiment may rise, potentially supporting both the Pound and the Euro. However, if Russia disrupts evacuation attempts then sentiment could sour again.
Looking further ahead, the European Central Bank’s (ECB) interest rate decision on Thursday could cause some significant movement. The bank walks a tightrope, trying to balance soaring inflation and massive risks to the Eurozone’s economic recovery. Markets will be particularly sensitive to the ECB’s forward guidance, so there may some volatility in store.