Pound Euro (GBP/EUR) Exchange Rate Wavers amid Uptick in European Market Mood
(Updated 16:30, 1/4/22) The Pound Euro (GBP/EUR) exchange rate wavered today, trading sideways overall, as both currencies faced mixed sentiment.
For the Pound (GBP), worries about the UK’s cost-of-living crisis created some downward pressure. Commentators are calling today ‘Bleak Friday’, as bills across the UK rise and the income squeeze tightens. However, a bullish market mood lent the risk-sensitive Pound some support.
Meanwhile, the Euro (EUR) also enjoyed a boost from the upbeat sentiment in European markets. But the mood in Ukraine was far from the optimistic heights hit earlier in the week. Analysts are still worried that Russia may be regrouping in order to launch new attacks.
Another factor pressuring the single currency was the strength in the US Dollar (USD) following positive US jobs data. The Euro is negatively correlated with the US Dollar, so the strength in USD weighed on EUR.
At the time of writing, GBP/EUR is trading at around €1.188, marginally higher than its opening levels.
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Pound Euro (GBP/EUR) Exchange Rate Rangebound, Eurozone Inflation in Focus
The Pound Euro (GBP/EUR) exchange rate is wavering this morning as mixed sentiment around both currencies keeps the pair in a narrow range.
We could see more pronounced movement as the morning unfolds. The Eurozone inflation rate came in far hotter than forecasts, which could rattle EUR investors. Additionally, Russia-Ukraine news may continue to inject volatility into the pair.
Pound (GBP) Muted on ‘Bleak Friday’ as Bills Rise
The Pound (GBP) is subdued this morning as investors are anxious about ‘Bleak Friday’. Today, prices are rising across the UK – most notably energy bills.
The price cap on energy bills increases by 54% today, which could cost households an extra £693 a year on average. Other costs are also rising, including council tax (up 3.5%) and water bills (up 1.7%).
This comes as soaring inflation and rising interest rates are squeezing household incomes.
Meanwhile, UK business are getting ready to raise prices in the coming months. According to the British Chambers of Commerce, two-thirds of firms are preparing to hike prices over the next three months – more than at any time since the 1980s.
The cost-of-living crisis has weighed on Sterling in recent weeks, and today’s news brings it to the forefront of investors’ minds once again.
However, an upbeat market mood, as evident in the rising equity markets, is lending the risk-sensitive Pound some support.
Euro (EUR) Quiet as Investors Warily Eye Ukraine Headlines
Meanwhile, the Euro (EUR) is trading in a narrow range today as markets wait to see whether or not Vladimir Putin will cut gas supplies from Russia to Europe.
Yesterday, Putin signed an order demanding that ‘unfriendly’ foreign countries must pay for Russian gas contracts in Russian Rubles (RUB). If clients don’t pay in RUB, Putin indicated that Russia could turn off the tap. Western countries and companies have rejected this demand, saying it breaches existing contracts.
However, today gas flows from Russia to Europe are running as normal. Investors are no doubt relieved, but it feels as though a cloud is hanging over the Euro as the threat remains present, preventing EUR from rising.
In addition, the Red Cross has announced that In addition, the Red Cross has announced that ‘top level authorities’ from Ukraine and Russia have agreed on an evacuation plan for the besieged port of Mariupol, cheering EUR investors.
This may be helping to counterbalance the Eurozone’s latest CPI, which saw inflation surge from 5.9% to 7.5%, far above forecasts of 6.6%. On the one hand, soaring inflation threatens the Eurozone’s economy at a fragile time. On the other, with inflation running hot, the European Central Bank (ECB) could be forced to tighten monetary policy.
Pound Euro Exchange Rate Forecast: Will GBP/EUR Break Out of Its Narrow Range?
Looking ahead, we could see more movement as markets digest the Eurozone CPI.
Any developments from the Russia-Ukraine war will also likely influence GBP/EUR today. Analysts are watching to see what the Kremlin will do next after a week of mixed messages and nervous trade. If Putin decides to cancel gas contracts with ‘unfriendly’ clients who refuse to pay in Russian Rubles, then EUR could slip.
In addition, there are some high-impact data releases due out of the US this afternoon. Economists expect the results to be broadly positive, which could boost the US Dollar (USD). This could in turn weigh on the Euro due to its negative correlation with USD.