Pound Euro Exchange Rate Rebounds from Three-Week Low
The Pound Euro (GBP/EUR) exchange rate is trending higher this morning, with the pairing rebounding from a three-week low.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1845, up roughly 0.2% from this morning’s opening rate.
Euro (EUR) Weakens as Russia Cuts off Poland Gas Supplies
The Euro (EUR) is under pressure this morning as Russia’s move to cut off gas supplies to Poland and Bulgaria has spooked EUR investors.
Russian energy giant Gazprom announced it halted gas exports to the countries’ after they refused to pay for supplies in Rubbles, following an order from President Vladimir Putin for ‘unfriendly’ countries to pay in the Russian currency.
Gazprom’s statement read:
‘Gazprom has completely suspended gas supplies to Bulgargaz (Bulgaria) and PGNiG (Poland) due to absence of payments in roubles. Payments for gas supplied from 1 April must be made in roubles using the new payments details, about which the counterparties were informed in a timely manner.’
EUR investors fear Russia’s ‘gas blackmail’ could be expanded to other countries like Germany, which are heavily dependent on Russian energy exports.
Placing additional pressure on the Euro this morning has been the publication of Germany’s latest consumer confidence figures.
April’s index reported consumer morale plunged to a record low, with households’ economic outlook growing increasingly gloomy amidst rising energy and food bills in addition to the war in Ukraine.
Pound (GBP) Capped by Easing BoE Rate Hike Expectations
At the same time, the Pound’s (GBP) gains against the Euro have been tempered by fading Bank of England (BoE) interest rate expectations.
Earlier in the year analysts had forecast the BoE would be likely to raise interest rates quite aggressively through 2022.
However, GBP investors are starting to reprice these expectations, especially in light of last week’s abysmal retail sales figures and fears over a sustained fall in consumer spending.
James Smith, Developed Markets Economist at ING comments:
‘We think the Bank of England is more likely to hike interest rates once or twice more, before pressing the pause button over the summer. That suggests market expectations of six more rate hikes this year are likely to be undershot.’
BoE Governor Andrew Bailey will speak later in the week. If he indicates the BoE may adopt a more cautious approach to monetary policy the Pound could tumble.
Pound Euro Exchange Rate Forecast: Lagarde in the Spotlight
Still to come today is a scheduled speech from European Central Bank (ECB) President Christine Lagarde.
There has been a notably hawkish shift by ECB policymakers in recent weeks, with Martins Kazaks expressing his support for a July interest rate hike just yesterday.
If Lagarde pushes back against her colleagues, the Pound Euro (GBP/EUR) exchange rate could push even higher.
In the meantime, the Confederation of British Industry (CBI) will release its distributive trades index. Will a slump in retail sales volumes in April undermine the Pound?