Pound Euro Exchange Rate Extends Downturn as EUR Boosted by ECB
(Updated 16:00, 26/08/2022) The Pound Euro (GBP/EUR) exchange rate fell further still this afternoon as Sterling losses were compounded by an unexpected uptick in Euro exchange rates.
The single currency attracted investment as European Central Bank (ECB) policymakers were reported to be speculating over the possibility of a 75bps interest rate hike later this year.
A Reuters report revealed that members of the central bank want to discuss a three-quarter percentage point hike on 8 September, despite the risks it would pose to the economy. This is largely due to a deteriorating inflation outlook.
Minutes of August’s meeting minutes, released yesterday, revealed widespread concerns that inflationary pressure are becoming entrenched.
Original article continues below:
GBP/EUR Exchange Rate Revisits Monday’s Lows
The Pound Euro (GBP/EUR) exchange rate is trending down this morning as the British energy regulator, Ofgem, raised the price cap in the UK to £3,549 from October.
At the time of writing, GBP/EUR is trading at €1.1824, down 0.3% from today’s opening levels.
Pound (GBP) Falls on Price Cap News
The Pound (GBP) is tumbling this morning as experts are downbeat on news that Britain’s energy price cap will rise to £3,549 in October. ‘Money Saving Expert’ Martin Lewis predicts that lives will be lost this winter without more help from the UK government.
Commenting on the news, Ofgem acknowledged that the rise ‘will be very worrying for many’, but points to supply chain issues:
‘The price of energy has reached record levels driven by an aggressive economic act by the Russian state,’ said Chief Executive Jonathan Brearley; ‘They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy.
Ofgem has no choice but to reflect these cost increases in the price cap.’
According to the regulator, responsibility lies with the government to provide ‘an additional and urgent response.’ Brearley adds that the response will have to match the scale of the crisis but is optimistic that the country will ‘find a way through’.
In response to such messages, UK Chancellor Nadhim Zahawi said he is working ‘flat out’ on an energy support plan but indicates it will not be implemented until the new Prime Minister is appointed.
The Pound is likely to remain subdued by today’s news, as the cost-of-living crisis threatens to further hamper consumer demand and business activity in the months ahead.
Euro (EUR) Strengthened by US Dollar Weakness
The Euro (EUR) is enjoying support this morning on account of US Dollar (USD) selling ahead of Federal Reserve Chairman Powell’s speech this afternoon. Jerome Powell will address the annual Jackson Hole Symposium and is likely to reveal the Fed’s updated economic outlook.
Market mood is cautious ahead of the event and amongst global recession fears, yet the single currency is attracting demand given its comparatively risk-off status, compared with currencies such as the New Zealand and Australian Dollars (NZD/AUD).
A lack of significant data in the Eurozone caps more significant EUR gains, although yesterday’s positive German data may be lending some additional support still.
The country’s business climate indicator printed above expectations at 88.5 – a marginal dip on July’s reading – as supply chain bottlenecks ‘eased significantly’.
Also influencing EUR exchange rates may be central bank dynamics. The European Central Bank(ECB) has struck a fairly hawkish tone recently, as the minutes from August’s policy meeting revealed: the decision to hike interest rates by 50bps was widely supported and policymakers agreed that further hikes should be appropriate in upcoming meetings.
GBP/EUR Exchange Rate Forecast: US Dollar Dynamics to Affect Currency Markets?
Looking ahead, a lack of significant data today from either the UK or the Eurozone leaves the Pound Euro exchange rate to trade on external factors.
The main event this week for the US Dollar – the Jackson Hole Symposium – is approaching and may influence currency markets more generally given the impact of the US economy on global trading sentiment.
If Chairman Powell strikes a hawkish tone, indicating a possible 75bps interest rate hike in September, the Euro may tumble on ECB-Fed divergence, subsequently buoying GBP/EUR.