Pound Euro (GBP/EUR) Exchange Rate Softens despite Cost-of-Living Support
(Updated 9:15, 27/5/22) The Pound Euro (GBP/EUR) exchange rate fell yesterday, despite a generous support package from the Chancellor of the Exchequer, Rishi Sunak.
Sunak announced an additional £15bn of spending to help households struggling with the cost-of-living crisis, partly funded by a windfall tax on energy companies.
However, there were some concerns that a windfall tax could deter investment. Additionally, a lack of support for businesses and an increase in government borrowing may have tempered the optimism.
Meanwhile, the Euro (EUR) strengthened thanks to its negative correlation to a weakening US Dollar (USD).
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Pound Euro (GBP/EUR) Exchange Rate Rangebound after Rising Overnight
The Pound Euro (GBP/EUR) exchange rate is rangebound this morning amid a lack of economic data on both sides. The sideways movement comes following a steady recovery since Tuesday afternoon.
As the day unfolds, the UK Treasury is due to announce a cost-of-living support package. Will the measures go far enough to support households struggling with the current fall in living standards?
Pound (GBP) Flat as Investors Await Treasury Announcement
The Pound (GBP) is muted today, although it has managed to recover all of the losses from Tuesday’s slump.
The recovery came despite yesterday’s ‘partygate’ report. Although it was certainly damning, Sue Gray’s report on lockdown-busting parties at 10 Downing Street doesn’t seem to have been the final nail in Boris Johnson’s coffin, as many opposition politicians had hoped it would be.
With it looking increasingly likely that the Prime Minister will be able to survive the scandal, GBP has managed to regain some ground.
In addition, optimism around Chancellor Rishi Sunak’s expected support package may have helped Sterling recover its losses. Sunak is set to announce a windfall tax on energy companies, which have raked in record profits amid surging energy prices, in a screeching government U-turn. This one-off levy will partly fund a multi-billion-Pound spending package to help households through the current cost-of-living crisis.
Markets have become increasingly fearful that the squeeze on household incomes will push the UK into a recession. Expectations of today’s announcement may be alleviating fears somewhat.
Euro (EUR) Subdued amid Lack of Data
Meanwhile, the Euro (EUR) is also quiet today amid a lack of Eurozone economic data.
The war in Ukraine continues to put some pressure on EUR, however the sharp movements that characterised the early days of the invasion have become few and far between. Russia’s offensive has entered a gruelling new stage. The conflict grinds on, but has fewer sudden impacts on the single currency.
Pound Euro Forecast: Sunak Statement in the Spotlight
When Rishi Sunak announces the support package this afternoon, we could see more movement in GBP/EUR. Commentators have been critical of Sunak’s policies in the past, arguing that they do not go far enough. Therefore, today’s spending plans will be under intense scrutiny.
Sunak has the unenviable task of striking a balance between exercising fiscal responsibility and supporting struggling households.
On the one hand, surging costs and higher taxes are hammering UK citizens, which in turn could damage the economy. On the other hand, rising inflation is pushing government debt interest payments to eye-watering levels.
Will Sunak get it right this time?