Pound Euro (GBP/EUR) Exchange Rate Slumps amid Recovery in EUR
(Updated 15:00, 9/3/22) The Pound Euro (GBP/EUR) exchange rate has tumbled to a ten-day low this afternoon as the Euro (EUR) continues to rally.
EU announcements have boosted the single currency in recent days, with the bloc outlining strategies to combat the economic and geopolitical damage done by Russia’s invasion of Ukraine.
Yesterday, reports emerged that the EU was mulling a joint-bond sale which would raise funds for energy and defence spending.
In addition, the European Commission has laid out plans to reduce the EU’s energy reliance on Russia. The strategy could cut the block’s dependence on Russian gas by two thirds by the end of 2023. Europe currently imports 40% of its gas from Russia.
Meanwhile, a more optimistic market mood around the Ukraine crisis is also lifting the Euro against the Pound (GBP). Recently, both Russia and Ukraine have shown a willingness to find a diplomatic solution. Meanwhile, today was the second day of area-specific ceasefires as Ukraine evacuated civilians.
However, the mixed success of these evacuations may have capped EUR’s gains. While some cities have been able to safely evacuate inhabitants, others have been disrupted by Russian attacks.
As a result, the Euro’s rally may be limited.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Hits One-Week Low on Stronger Euro
The Pound Euro (GBP/EUR) exchange rate slipped this morning as European optimism boosts the single currency. Sterling is also finding some support, but the Euro (EUR) is outperforming the Pound (GBP).
At the time of writing, GBP/EUR is trading at around €1.199, just up from a one-week low and roughly 0.2% down from this morning’s opening levels.
Euro (EUR) Firms amid European Optimism
The Euro is firming against the Pound today, hitting a one-week high, as positive news from Ukraine cheers EUR investors.
Russia has agreed to a second day of ceasefires in humanitarian corridors to allow more civilians to evacuate. Ukraine will have a 12-hour window in which to evacuate Ukrainians and international students from several areas, including the besieged city of Mariupol.
Yesterday, around 7,000 people were evacuated during the first sustained evacuation effort since the invasion began.
The ceasefires are latest indication that the Ukraine crisis may be improving. Over the weekend, David Arakhamia, a Ukrainian presidential adviser and member of Kyiv’s negotiating team, said that Ukraine was considering ‘non-Nato models’.
Ukraine’s intention to join Nato was one of Russian President Vladimir Putin’s reasons for invading. Therefore, these comments could help to de-escalate the situation.
In addition, Turkish Foreign Minister Mevlüt Çavuşoğlu announced on Monday that his Russian and Ukrainian counterparts will meet in Turkey on Thursday. This will be the first time Russia’s and Ukraine’s foreign ministers have met since the invasion began. Çavuşoğlu will also attend the meeting, helping to mediate.
These developments indicate a willingness for diplomacy on both sides. With the Eurozone economy particularly exposed to the war in Ukraine, this is helping the single currency regain some ground today.
Pound (GBP) Fails to Keep Pace with EUR
Meanwhile, the Pound has slipped lower against the rising Euro. Although the generally positive tone in markets is providing GBP with some support, EUR is the main beneficiary.
Additionally, warnings about the UK economy yesterday may be dragging on Sterling somewhat.
Economists from CEBR and ING slashed growth forecasts for 2022 and 2023 as they expect sanction-driven spikes in commodity prices to push UK inflation even higher.
CEBR now expects surging energy prices to push inflation to 8.7% and believes price pressures will persist for longer. CEBR commented:
‘Worryingly, this is not a ‘worst case’ scenario – spot prices are now higher than we assumed and Russia’s threat to stop supplying oil could well push the price of oil well above the level assumed.’
This fuels fears of the UK’s cost-of-living crisis as households face a squeeze on incomes from multiple angles. This has been a significant headwind for GBP over the past few months and could continue to weigh on the currency throughout the year.
Pound Euro Exchange Rate Forecast: ECB Decision in the Spotlight
With no data due out from either the Eurozone or the UK, news related to the Ukraine crisis could continue to drive the Pound Euro pair.
Both EUR and GBP investors will be keeping an eye on the headlines. If the civilian evacuations are successful, market mood could improve and support both currencies. In addition, any more news on the economic impact of the invasion will likely also cause movement.
Tomorrow we have the European Central Bank’s (ECB) latest interest rate decision. The ECB has to perform a tough balancing act. On the one hand, inflation is at a record high and is expected to rise further. On the other, the Russia-Ukraine war could significantly dent Eurozone growth.
Amid such uncertainty, the ECB’s forward guidance could be particularly impactful. Investors will be attentive to see whether ECB President Christine Lagarde appears to backtrack after opening the door to a 2022 rate hike at the bank’s last meeting. Any dovish comments could dent the Euro.