Pound Euro (GBP/EUR) Exchange Rate Surges amid Eurozone Anxiety
(Update 16:00, 30/6/22) The Pound Euro (GBP/EUR) exchange rate extended its upside today, peaking at a 13-day high of €1.1685 before paring its gains.
The single currency has faced selling pressure today as investors worry about the future of the Eurozone economy. Markets are fearful that Russia will further cut energy supplies to the European mainland as winter approaches. Economists believe that such an event would plunge the Eurozone into a recession.
In addition, the bloc seems to be on the verge of another debt crisis. As the European Central Bank (ECB) prepares to raise interest rates, there are signs that borrowing costs across different Eurozone countries could diverge sharply. Such an event would cause severe financial instability across the bloc, pressuring debt-stressed economies and undermining the Euro (EUR).
These fears have weighed heavily on EUR today.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Rises despite Poor UK Data
The Pound Euro (GBP/EUR) exchange rate wavered higher this morning as Sterling capitalised on a weaker Euro (EUR). However, the upside could be tenuous as the Pound (GBP) faces its own challenges.
At the time of writing GBP/EUR is trading at around €1.1638, up from €1.161, where it held steady overnight.
Pound (GBP) Firms despite Fall in Business Investment
The Pound is zigzagging higher against the Euro today, despite ongoing concerns about the UK economy.
The UK’s final GDP report for the first quarter of this year matched previous estimates, printing at 0.8%. However, business investment was revised lower, contracting by 0.6% quarter on quarter in Q1 2022.
In addition, the latest data confirmed that household incomes continue to decline amid the cost-of-living crisis. Disposable income fell for the fourth consecutive quarter – the longest continual decline on record.
#Realincomedecline pic.twitter.com/LAkCoxzqPk
— Max HarryHindsight Capital (@MaxDrake007) June 30, 2022
While these figures are no doubt downbeat, the UK’s economic woes may already be priced in to the Pound. As a result, Sterling is able to climb against a weakening Euro.
Euro (EUR) Slides on Russia and Eurozone Economy Concerns
The single currency faces multiple headwinds this morning.
Worries about fragmentation in the Eurozone are impacting EUR. As the European Central Bank (ECB) raises interest rates, economists fear it could push up government debt disproportionately in different Euro area economies, which in turn would destabilise the single currency.
At the bank’s forum in Sintra, ECB President Christine Lagarde failed to soothe investors. The ECB is developing a tool to tackle fragmentation, but so far there are no details.
Additionally, the Russia-Ukraine crisis is rattling EUR investors. Finland and Sweden are set to join Nato after Turkey finally supported the two countries’ membership bids.
Russian President Vladimir Putin has warned that any military build-ups in the two Scandinavian states would prompt Russia to ‘restore military balance’, including deploying nuclear weapons in the Baltic Sea region.
The conflict on the Eurozone’s doorstep has hammered the Euro in the previous months, and the potential for escalation is worrying markets.
Pound Euro Exchange Rate Forecast: Can GBP Sustain the Upside?
Later this morning, the Eurozone’s latest unemployment rate could cause some movement. Economists expect it to hold steady at 6.8%. If it prints above or below forecasts, EUR could fall or firm, respectively.
ECB chief Lagarde is due to speak again this afternoon. Investors will be particularly attentive to comments about interest rate rises and fragmentation. However, as Lagarde has delivered multiple speeches this week, today’s event could be less impactful.
As for GBP, domestic UK news could drive most movement. Any fresh stories about the cost-of-living crisis, the Northern Ireland protocol or political discontent could hurt Pound Sterling.