Pound Euro (GBP/EUR) Exchange Rate Wavers Higher
(Updated 16:45, 27/5/22) The Pound Euro (GBP/EUR) exchange rate manged to gain some ground today as markets mulled Rishi Sunak’s support package.
Response to the spending plan was mixed. Some commentators said that the measures could help prevent a recession in the UK. However, others were critical of the windfall tax and its potential impact on investment. Meanwhile, conservative newspapers expressed concern over the increased government borrowing.
Despite this, the Pound (GBP) rose against the Euro (EUR). The upside came as EUR faced selling pressure. A lack of Eurozone economic data and worries about the Ukraine crisis pushed the single currency lower.
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Pound Euro (GBP/EUR) Exchange Rate Wobbles amid Support Package and Lack of Data
The Pound Euro (GBP/EUR) exchange rate is wavering today as markets continue to digest the support package announced by the UK Treasury yesterday.
Meanwhile, a lack of Eurozone data is keeping the Euro (EUR) fairly muted.
Pound (GBP) Unimpressed by Sunak’s Spending Package
The Pound (GBP) is heading lower against the majority of its peers this morning as markets seem indifferent to Rishi Sunak’s cost-of-living support package.
Yesterday, Sunak announced a £15bn spending package to support households struggling with soaring prices and rising bills. The government will introduce a windfall tax on energy companies to fund part of the package.
While the measures were generous, and seem to help the poorest households the most, some commentators expressed concern.
The Confederation of British Industry (CBI) criticised the windfall tax, arguing that it could hurt investment. Rain Newton-Smith, the CBI’s Chief Economist, commented:
‘Despite the investment incentive, the open-ended nature of the energy profits levy – and the potential to bring electricity generation into scope – will be damaging to investment needed for energy security and net zero ambitions.’
Meanwhile, Hannah Essex, Co-Executive Director of the British Chambers of Commerce, said there needs to be more help for businesses. Essex said:
‘For business, the toxic mix of inflation, raw material costs and supply chain disruption is the flip-side of the coin to the problems facing consumers.
‘Unless steps are also taken to ease business costs, they will likely feed into the inflationary pressure on the economy and quickly eat into the financial support announced today.’
In addition, some analysts are concerned about the associated increase in government borrowing needed to fund the package.
As a result, rather than boosting the Pound, Sunak’s plans seem to be having little effect.
While GBP is slipping against its stronger peers, GBP/EUR is wavering sideways.
Euro (EUR) Subdued amid Lack of Data
As for the Euro, thin trading conditions are resulting in muted movement. There was no Eurozone data yesterday, nor is there any today, as some EU institutions are closed for the Ascension Thursday public holidays.
The Russia-Ukraine war continues to apply pressure to EUR exchange rates. Meanwhile, the European Central Bank’s (ECB) recent hawkishness could be preventing serious losses.
Pound Euro Exchange Rate Forecast: Fluctuations Ahead?
As the day unfolds, we could see more movement in GBP/EUR as commentators analyse Sunak’s spending plans.
At the time of writing, Deutsche Bank has just offered a moderately optimistic take on the support package. The bank’s Chief UK Economist, Sanjay Raja, has said that the new measures should help the UK to avoid a recession. More upbeat comments like this could support GBP.
Movement in the US Dollar (USD) later today could also impact the Pound Euro pair. As EUR is negatively correlated to USD, any movement in the latter may affect the former. Some high-impact American data later this afternoon could therefore cause GBP/EUR movement.