Pound Euro (GBP/EUR) Exchange Rate Rises amid Eurozone Energy Security Concerns
(Updated 15:40, 18/8/22) The Pound Euro (GBP/EUR) exchange rate has continued to rise today, recouping some of yesterday’s losses, as anxiety over the Eurozone’s energy security weigh on the Euro (EUR).
Surging energy prices and gas shortages could cause significant damage to the Eurozone economy as the cooler months come ever closer.
Today, these fears are weighing on EUR, with energy commodities up across the board. At the time of writing, Brent crude is up 2.35% on the day, coal is up 2.2% and EU natural gas is up an eye-watering 5.25%.
The current drought hitting Europe, following an unusually dry year and searing heatwaves, has increased electricity demand.
Meanwhile, key waterways – most notably the Rhine – are drying up. The Rhine is a key trading artery for Europe. Low water levels are affecting transit, forcing freight ships to carry less cargo, including energy commodities such as fuel and coal.
European countries have been increasingly reliant on coal as an alternative energy source since Russia began slashing gas supplies.
The recent surge in energy prices is rattling EUR investors, who fear that the Eurozone energy crisis will trigger a deep recession later this year.
Meanwhile, the Pound’s (GBP) gains may be limited as the UK faces similar problems.
Surging energy prices have pushed UK inflation to a 40-year high of 10.1%, even as growth slows and the country slides towards an expected recession. The Pound has declined against its other peers today.
The Euro may get some relief in the days ahead. Expected rainfall could help alleviate the drought and cool the energy commodities market somewhat. In addition, Eurozone countries are succeeding in filling gas storage sites ahead of the winter, which will be crucial if Russia decides to completely sever supplies to Europe.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Licks Wounds following Post-CPI Sell-Off
The Pound Euro (GBP/EUR) exchange rate fluctuated this morning as traders continue to react to yesterday’s UK inflation figures in the absence of any new data.
At the time of writing, GBP/EUR is trading at around €1.1846, up marginally from this morning’s opening levels but still well below where the pair started the week.
Pound (GBP) Wavers amid Lack of New Data
Yesterday’s UK CPI reading continues to cause some mixed movement in the Pound (GBP) today. After UK inflation jumped to 10.1% – above market expectations – traders increased their bets for another half-point hike at the Bank of England’s (BoE) next interest rate decision.
However, surging inflation also amplified concerns about the UK’s cost-of-living crisis and looming recession.
These mixed trading signals appear to be affecting Sterling today as a lack of fresh economic data leaves markets to dwell on yesterday’s CPI release.
Euro (EUR) Subdued ahead of Final Inflation Rate Reading
Meanwhile, the Euro (EUR) was subdued this morning as EUR investors awaited the final inflation rate reading from the Eurozone.
Although economists didn’t expect the final reading to differ from initial estimates, the possibility seemed to be cause some hesitancy around the single currency.
In addition, strength in the US Dollar (USD) may be weighing on the Euro. EUR shares a negative correlation with USD, so when the latter is rising the former often falls. So far, this cautious tone around the Euro has allowed the Pound to tick higher.
Pound Euro Exchange Rate Forecast: UK Instability to Drag GBP Down?
Looking ahead, the Euro could be driven by energy security fears today. Gas prices continue to rise, stroking fears of unsustainably high energy costs, as the Eurozone faces severe shortages come winter.
As for the Pound, investors may turn their attention to domestic news. With the country in the grip of a cost-of-living crisis, many workers are demanding better pay to weather the surge in prices. As inflation rises, unions across many different sectors are considering or taking industrial action.
Today, rail workers are striking once again, causing significant disruption across the country.
Mick Lynch, General Secretary of the RMT union, said that strike action could intensify. Lynch said:
‘What you are going to get is a wave of solidarity action, generalised strike action, synchronised action. And you’ll see it in every sector of the economy, in education, in health, wider parts of the transport system, in all sectors, the private sector as well.
‘People are fed up with the way they’ve been treated. The British worker is basically underpaid and gets no dignity or respect in the workplace.’
Fears of further strike action add to a general sense of instability in the UK. Britain’s economy is heading towards a recession, the Conservative leadership election creates huge political uncertainty, and civil discontent is growing. Will these concerns start to put more pressure on the Pound as the day goes on?