GBP/EUR Exchange Rate Extends Gains as EU Trade Deficit Widens
(Updated 15:15, 18/03/2022) The Pound Euro (GBP/EUR) exchange rate is recouping yesterday’s losses as weak data from the Euro area exerts Euro (EUR) downside.
The Euro area’s trade deficit widened in January to €27.2 rather than shrinking as expected to €2.6: according to Eurostat, payments for imports jumped by 44.3% year-on-year, while revenues from exports grew by only 18.9%.
This marked the third consecutive month of shortfall, and a substantially larger deficit than in the previous two months.
Further denting risk sentiment – strengthening the US Dollar and therefore weighing upon EUR – were updates that Russian President Vladimir Putin has recruited Syrian forces to fight in Ukraine.
According to European intelligence officials, the first Syrian troops to join Putin’s ranks – an advance force of 150 – arrived in Russia on Thursday; the Syrian Observatory for Human Rights believes 40,000 Syrians have signed up to fight so far.
A Kurdish fighter with the Syrian Democratic Forces reports:
‘They have been arriving in the dozens to the regime base in Raqqa, we can see them turn up. The Russians have also asked [Kurdish groups] to join them, but I don’t know of anyone who has done so yet.’
Original article continues below:
Pound Euro Exchange Rate Firms as Euro Tumbles
The Pound Euro (GBP/EUR) exchange rate is rising this morning following yesterday’s steep decline in the wake of the Bank of England (BoE)’s interest rate decision. US Dollar (USD) strength is weighing upon the Euro (EUR) as risk sentiment weakens.
At the time of writing, GBP/EUR is trading at €1.1878, up 0.2% from today’s opening levels.
Pound (GBP) Recoups Losses against Several Peers
The Pound (GBP) is climbing against several of its rival currencies this morning following yesterday’s surprisingly dovish rhetoric from the BoE.
GBP sentiment took a significant hit as MPC member Jon Cunliffe voted for no change in interest and policymakers gave a cautious outlook for the months ahead.
Into today, Sterling has found relative strength on its comparatively risk-off status – market mood is souring following downbeat comments regarding the Ukraine crisis.
Ukrainian and Russian spokespeople reveal there has been little progress in negotiations, as a western official told Reuters that there is still a very big gap between the positions of the two countries.
There is some cause for hope, however, as the UK Ministry of Defence publishes its latest report, revealing that Russian forces have made ‘minimal progress’ this week. The report reads:
‘Ukrainian forces around Kyiv and Mykolaiv continue to frustrate Russian attempts to encircle the cities. The cities of Kharkiv, Chernihiv, Sumy and Mariupol remain encircled and subject to heavy Russian shelling.’
Euro (EUR) Dented by USD Strength, Investors await Trade Balance
The Euro (EUR) is tumbling against its peers today as strength in the US Dollar suppresses demand for the single currency.
Risk sentiment fell from yesterday’s highs following suggestions that peace talks were accomplishing little – such reports buoyed safe-haven assets and subsequently weighed upon perceived-riskier currencies.
Another reason for EUR’s downturn against its peers is higher commodity prices, which bolster commodity-linked currencies such as the Canadian Dollar (CAD) and to a lesser extent, the Australian Dollar (AUD).
While the European Central Bank (ECB) has conceded it may yet hike interest rates this year, it remains more dovish than other central banks which have already hiked rates in succession. This is a further factor weighing upon the Euro.
Looking ahead, the trade deficit in the Euro area is expected to decrease – following the publication of January’s balance of trade today, the single currency may find some support.
Pound Euro Exchange Rate Forecast: EUR to Gain on Reduced Trade Deficit?
The publication of January’s trade balance may affect Pound Euro trading today, if the deficit in the Euro area decreases as expected. Meanwhile, external factors continue to guide risk sentiment, contributing towards movement in the GBP/EUR exchange rate.
If peace talks between Ukraine and Russia continue to make limited progress, market sentiment may fall, drawing support away from both the Pound and the Euro, and towards safe-haven assets.
On the other hand, if Russia continues to stall in their attempt to seize power across Ukraine, risk-on flows could buoy GBP/EUR. US President Joe Biden is due to speak to China’s Xi Jinping later today, warning him that China will face ‘costs’ if it helps Russia to win the war.