Pound Euro (GBP/EUR) Exchange Rate Extends Recovery as European Markets Remain Downbeat
(Updated 15:30, 31/3/22) The Pound Euro (GBP/EUR) exchange rate continued to rise today, boosted by the UK’s better-than-expected GDP growth rate.
Meanwhile, the Euro (EUR) faced selling pressure amid anxiety over the Russia-Ukraine war. After EUR rallied earlier in the week on apparent progress in peace talks, sentiment has now soured. Nato Secretary General Jens Stoltenberg warned that Moscow is not withdrawing troops but regrouping for a renewed offensive. Stoltenberg said:
‘According to our intelligence, Russian units are not withdrawing but repositioning. Russia is trying to regroup, resupply and reinforce its offensive in the Donbas region.
‘At the same time, Russia maintains pressure on Kyiv and other cities. So we can expect additional offensive actions, bringing even more suffering… We have no real change in the real Russian objective… they continue to pursue a military outcome.’
This gloomy analysis is weighing on EUR sentiment.
In addition, Russian President Vladimir Putin has said that foreign buyers must use Russian Rubles (RUB) to pay for Russian gas from 1 April. Putin also said that Russia would cancel contracts if it did not receive payments. Western leaders have rejected Putin’s demand.
Europe buys around a third of its gas from Russia. In Germany, Europe’s largest economy, 55% of gas imports come from Russia. If Putin turns off the tap, it could have serious economic consequences for the Eurozone, as well as the UK and other countries.
European markets are anxious about today’s developments, as evident in the fall in equity markets. This risk-off mood has in turn boosted the safe-haven US Dollar (USD), piling even more pressure on the Euro.
At the time of writing, the Pound Euro pair is trading at about €1.1837, up 0.75% from the three-month low hit in the early hours of this morning.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Rallies on UK GDP Growth Rate
The Pound Euro (GBP/EUR) exchange rate strengthened this morning, bouncing off a three-month low, after the UK’s final GDP growth rate beat previous estimates.
Meanwhile, the Euro’s (EUR) three-day rally ground to a halt as optimism in Ukraine fades.
Pound (GBP) Firms as UK GDP Revised Higher
The Pound (GBP) touched a fresh three-month low against the Euro overnight but has since managed to bounce back.
Part of the Pound’s upside this morning comes from the UK’s final GDP growth rate for the fourth quarter of 2021, which printed above preliminary results. Quarter-on-quarter growth came in at 1.3%, versus the expected 1%, while year-on-year growth was at 6.6%, versus 6.5%.
The latest revision means that the UK economy grew faster than initially thought last year. The Office for National Statistics (ONS), which compiled the data, now estimate the UK economy ended 2021 just 0.1% below pre-pandemic levels.
GBP investors have welcomed the news. However, the worsening cost-of-living crisis continues to darken the economic horizon. As a result, there could be a lid on Sterling’s gains.
Euro (EUR) Retreats from Three-Month High
Meanwhile, the Euro is looking rather weak this morning as its three-day winning streak runs out of steam.
A positive tone around the Russia-Ukraine war boosted the single currency this week, but EUR/GBP may have reached its limit at a three-month high of just over £0.85.
The Euro’s rally came as peace talks seemed to make progress, with the Kremlin saying it would scale back its military activity. However, many in the West are cynical. Analysts believe Russia is regrouping and refocusing its strategy after suffering heavier-than-anticipated losses. In the meantime, the Russian military continues to strike civilian targets.
Throughout this invasion, the West has accused Moscow of playing a ‘smoke and mirrors game’. The Kremlin often says one thing and does another. Today, EUR investors seem wary that peace may not be as close as they had hoped.
The latest Eurozone unemployment rate may not offer EUR much support. The unemployment rate fell for the tenth consecutive month. However, the consensus was that it would drop from 6.8% to 6.7%. Instead, the unemployment rate fell from an upwardly revised 6.9% down to 6.8%.
Pound Euro Exchange Rate Forecast: Can Sterling Extend Its Upside?
Looking ahead, the recent unemployment data could feed through into the Pound Euro exchange rate. Will EUR investors celebrate the steady decline in unemployment, or will they ignore the rather lacklustre figures?
News from Ukraine could also have an impact. While both GBP and EUR are affected by the war, the single currency is the most closely correlated to the conflict. As a result, any positive updates could boost the Euro against the Pound.
High-impact data from the US later this afternoon could also affect GBP/EUR. As the Euro is negatively correlated with the US Dollar (USD), any movements in USD could impact EUR.