Pound Euro (GBP/EUR) Exchange Rate Surges as UK Political Uncertainty Eases
(Updated 16:15, 7/7/22) The Pound Euro (GBP/EUR) exchange rate rose to a six-week high today as reduced political instability in the UK cheered investors.
Prime Minister Boris Johnson has resigned as leader of the Conservative Party following months of uncertainty and scandals. Normally a change in leadership would dent the Pound (GBP). However, investors believe Johnson’s resignation will actually usher in a period of greater stability, as his premiership has been in doubt since the ‘Partygate’ revelations last year.
Meanwhile, energy security fears in the Eurozone are pressuring the Euro (EUR). Europe is reliant on Russian gas, but Moscow has slashed supplies in recent weeks in retaliation for Western sanctions. Analysts fear that surging energy prices and gas shortages could plunge the Eurozone into a recession.
Yesterday, European Commission (EC) President Ursula von der Leyen warned that Russia could completely cut off gas exports to Europe. Speaking to the European Parliament, the EC chief said:
‘We also need to prepare now for further disruption of gas supply and even a complete cut-off of Russian gas supply.’
These concerns have put significant pressure on the Euro in recent weeks. Unless there is some good news soon, the single currency may remain subdued.
Currently, the Pound Euro exchange rate is trading at €1.17885, around 0.8% up from today’s opening level.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Strengthens as PM Steps Aside
The Pound Euro (GBP/EUR) exchange rate trended higher this morning amid reports that Boris Johnson will resign as Prime Minister.
Meanwhile, the Euro (EUR) seems muted as EUR investors await the European Central Bank’s (ECB) June meeting minutes.
Pound (GBP) Rises on News of Johnson’s Resignation
The Pound (GBP) ticked higher this morning as the political chaos of the last day and a half comes to an end.
Following over 50 government resignations, and calls for the Prime Minister to resign from formerly loyal MPs, Boris Johnson has agreed to leave office.
Usually, a change of political leadership would hurt a country’s respective currency. However, Johnson’s premiership has been plagued with scandal and uncertainty for months. GBP investors currently seem hopeful that a new Prime Minister will bring stability at a time of national and global crises.
That said, Johnson’s resignation still creates uncertainty in the near term. The Conservative party must now elect a new leader, and the candidates are likely to have contrasting opinions on the crucial issues facing the UK, including Brexit, the cost-of-living crisis and surging inflation. As a result, Sterling may find its gains limited.
Euro (EUR) Subdued ahead of ECB Minutes
Turning to the Euro, EUR investors seem quiet this morning as they await the ECB meeting accounts from the bank’s June policy decision.
The ECB faces a huge challenge as it tries to normalise monetary policy. Policymakers have signalled that the bank will start raising rates this month to tame record-high inflation, and this news would usually support a currency.
However, the ECB needs to navigate the increasing likelihood of a recession as well as fragmentation in the Eurozone. As interest rates rise, this could disproportionately affect the different economies within the monetary union, creating financial instability.
Against this complicated backdrop, the ECB must tread carefully. EUR investors will be scouring the minutes to see how the bank plans to respond to and balance each threat. Until then, traders seem to be waiting on the sidelines.
Pound Euro Exchange Rate Forecast: More Volatility on the Way
While the Pound is currently rising, there could be more volatility in store. Much uncertainty remains. Johnson wants to stay on as PM until a new leader is elected, but a growing number of MPs are calling on him to stand aside and allow Deputy PM Dominic Raab to hold office in the interim.
The political instability could last for days, or even months, and so we may see GBP exchange rates experience some turbulence.
As for the Euro, the ECB minutes could also cause volatility. We may see GBP/EUR waver as the day progresses.