Pound Euro Exchange Rate Stumbles as Strike Action Adds to Economic Concerns

Pound Euro (GBP/EUR) Exchange Rate Wavers Lower amid Rail Strikes and Recession Fears

(Updated 16:00, 21/6/22) The Pound Euro (GBP/EUR) exchange rate fell today as rail workers staged the first of three 24-hour walkouts.

Members of the RMT union are striking in a dispute with employer National Rail over pay and conditions, causing severe travel disruption across the country. With commuters struggling to get into work, the strike action could stifle the UK’s already-ailing economy.

The hospitality industry could be hardest hit, with many firms still reeling from the pandemic. According to Kate Nicholls, CEO of UKHospitality, the strikes could cost the sector £500m. Nicholls also warned that one in three businesses are ‘incredibly fragile’ to the economic shock.

RMT wants a 7% pay rise for rail staff, with inflation currently at 9% and expected to peak above 11% in the autumn. However, the UK government claims that such pay rises will only fuel inflationary pressures, despite approving above-inflation rises for pensioners next year.

Amid the strikes, former Tory Chancellor Kenneth Clarke has delivered a stark warning on the UK economy. Clarke argued that the UK is facing one of the worst economic crises in a generation:

‘We are in one of the worst economic crises I can remember in my lifetime, certainly since 1979. We are, I think, almost certainly going to go into recession in the next couple of years, and the Bank of England (BoE) has had to start tackling inflation, which has been allowed to get completely out of hand. And I don’t think it is going to be self-correcting… Really strong action has got to be taken to minimise the consequences of the economic problems we’re going to see over the next two years.’

These concerns have offset bets for more aggressive action from the BoE. Over the last two days, two BoE policymakers have hinted at more hawkish action. This initially boosted Sterling, but economic concerns have pushed the Pound (GBP) lower.

At the time of writing, the Pound Euro exchange rate is at €1.163, down from today’s high of €1.1664.

Original article continues below:

Pound Sterling (GBP) Edges Down against the Euro (EUR) amid Rail Strikes and Russia Tensions

The Pound Euro (GBP/EUR) exchange rate stumbled this morning as rail strike action threatens travel chaos across the UK. However, the Euro (EUR) may find its gains limited as Russia-EU tensions begin to rise.

At the time of writing, GBP/EUR is trading at around €1.1644, slightly down from €1.1658 at the open of the European session.

Pound Undermined by Rail Strikes

The Pound (GBP) ticked higher against some of its peers this morning as an upbeat mood in European markets boosted the risk-sensitive UK currency. However, the cheery tone among investors is also boosting the Euro, leaving GBP/EUR slipping slightly lower.

One factor that could be offsetting Sterling’s upside today is the strike action by UK rail workers.

Around 50,000 workers across the rail industry walked out today in a dispute over pay, pensions and jobs cuts. The ensuing disruption will last for a week, damaging the already-struggling UK economy.

The strike comes as wages failed to keep pace with inflation. Network Rail reportedly offered staff a pay rise of 2-3%, although UK inflation is at 9% and expected to rise over 11% in October.

Meanwhile, barristers are also planning walkouts next week, and reports suggest NHS and teaching staff are considering strike action.

These developments are the latest signs that the UK’s cost-of-living crisis is leading to social and political unrest, which could further destabilise the country. Therefore, GBP investors may be a little jittery today.

Euro Capped by Russia-EU Worries

The Euro is also enjoying the more optimistic mood in European markets this morning, as well as its negative correlation to a weaker US Dollar.

However, Russia-EU tensions may be undermining the single currency.

A dispute has broken out between Lithuania and Russia. The former has banned the transit of EU-sanctioned goods across its territory into the Russian enclave of Kaliningrad.

Russia’s foreign ministry has called the move ‘openly hostile’ and has threatened retaliation. It said:

‘If cargo transit between the Kaliningrad region and the rest of the Russian Federation via Lithuania is not fully restored in the near future, then Russia reserves the right to take actions to protect its national interests’.

Fears that the Russia-Ukraine war could spill over into other countries could be hurting the Euro, as the Eurozone economy is particularly vulnerable to the fallout from the conflict.

Pound Euro Exchange Rate Forecast: GBP/EUR to Waver?

With both currencies facing some mixed impulses today, we could see the Pound Euro exchange rate waver. Any negative developments on either side may give one an advantage over the other.

Later this morning, the Confederation of British Industry’s latest industrial trends orders could cause some movement. Any downbeat news could add to the gloominess hanging over the UK economy.

However, movement may be somewhat restrained ahead of tomorrow’s UK inflation rate release. Economists expect UK inflation to have risen to 9.1% in May. With the Bank of England (BoE) hinting at steeper rate rises in future meetings, a hotter-than-forecast CPI could boost GBP. Therefore, traders may be waiting for that release before placing aggressive bets.

Samuel Birnie

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