Pound Euro Exchange Rate Firms as EU Proposes Ban on Russian Oil

Pound Euro Exchange Rate Buoyed by EU Energy Concerns

The Pound Euro (GBP/EUR) exchange rate is trending higher this morning, following the news the EU will seek to phase out Russian oil imports.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1897, up roughly 0.2% from this morning’s opening rate.

Euro (EUR) Weakens as EU Seeks to Ban Russian Oil

The Euro (EUR) is on the back foot against the Pound (GBP) this morning, after the EU outlined its sixth round of sanctions on Russia.

EUR investors were particularly unnerved by European Commission chief Ursula von der Leyen’s proposal for a total ban on Russia oil imports amidst existing concerns over Europe’s energy security.

Von der Leyen said:

‘This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined. We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimises the impact on global markets.

‘This is why we will phase out Russian supply of crude oil within six months and refined products by the end of the year.’

Also applying pressure to the Euro this morning is the publication of Germany’s latest trade figures.

According to data published by Destatis, Germany’s trade surplus shrank from €11bn to €9.7bn in March. This came as exports contracted by 3.3% following the onset of the war in Ukraine.

Pound (GBP) Subdued ahead of BoE Interest Rate Decision

At the same time, the Pound (GBP) is only finding limited gains this morning as GBP investors brace for the Bank of England’s (BoE) upcoming interest rate decision.

Analysts suggest the BoE has a difficult decision as it seeks to tame rampant inflation without triggering a recession.

The current consensus is the BoE will deliver its fourth consecutive interest rate hike when it concludes its May policy meeting on Thursday. The hike has been largely priced in by GBP investors placing the focus on the bank’s forward guidance.

A cautious outlook from the BoE would sink hopes for several more rate hikes this year and pressure the Pound.

Of course, given the BoE’s reputation for being an ‘unreliable boyfriend’ there remains a risk the bank could stay its hand. A move which would drive a sharp slump in Sterling.

Pound Euro Exchange Rate Forecast: UK Local Elections to Also Influence Sterling?

While the BoE’s interest rate decision will act as the primary catalyst of movement in the Pound Euro (GBP/EUR) exchange rate in the second half of the week, the pairing may also be influenced by the outcome of the UK’s local elections.

There could be fresh calls for Boris Johnson to resign as Prime Minister if the Conservative party performs poorly in Thursday’s vote.

The prospect of Johnson being ousted would likely unsettle GBP investors and push Sterling lower.

Meanwhile, the focus for EUR investors is likely to be on a speech by European Central Bank (ECB) chief economist Philip Lane.

Lane has previously indicated a rate hike from the ECB may be imminent, and a similar message from him in tomorrow’s speech could bolster the Euro.

Matthew Andrews

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