Pound Euro (GBP/EUR) Exchange Rate Extends Gains as BoE Delays Interest Rate Decision

GBP/EUR Exchange Rate Continues to Firm as EUR Gains Capped

(Update 16:45 09/09/2022) The Pound Euro (GBP/EUR) exchange rate continued to climb through today’s session, as Euro gains were capped by energy supply concerns and the BoE postponed its September policy meeting. Pound investors set aside interest rate speculation, as the UK’s central bank stated:

‘In light of the period of national mourning now being observed in the United Kingdom, the September 2022 meeting of the Monetary Policy Committee has been postponed for a period of one week.’

In the Eurozone, the European Central Bank (ECB) maintained a hawkish tone as policymakers justified yesterday’s unprecedented 75bps rate hike. Suppressing further support, however, was a focus upon the bloc’s energy crisis, as EU ministers met to apply for support from the European Commission.

Several representatives insisted that support measures must be immediate, yet no definitive steps were taken. Previously, experts had suggested a price cap on imported gas – including supplies from Russia – but this idea was shelved for the time being.

EU Energy Commissioner Kadri Simson said the ‘unprecedented’ measures will be proposed next week, as Simone Tagliapietra, a senior fellow at the Bruegel think tank in Brussels, observed:

‘All these measures are extraordinarily complex to be engineered, it will take a great political commitment by member states to quickly adopt them in the coming weeks.’

Original article continues below:

Pound Euro Exchange Rate Movement Capped by Lack of Significant Data

The Pound Euro (GBP/EUR) exchange rate is trading gently higher this morning, buoyed by a risk-on mood despite ongoing headwinds facing the UK economy. Industrial action planned for today has been suspended following the news of the Queen’s death yesterday afternoon.

At the time of writing, GBP/EUR is trading at €1.1525, up slightly from today’s opening levels.

Pound (GBP) Faces Unusual Trading Conditions Following Her Majesty’s Death

The Pound (GBP) is trading in a mixed range this morning but resists a significant downturn amid risk-on trading conditions. Industrial action planned to take place has been suspended, possibly lending additional support to the currency.

Analysts at the Guardian report that while markets are open, the main indices aren’t expected to be volatile as investors contemplate the reign of Queen Elizabeth II. Her Majesty’s death may cause a brief lull amid recent political developments, which initially triggered some volatility.

Furthermore, several retail outlets have closed for the day out of respect for the Queen’s passing. Major names include Selfridges and Liberty – many other stores remain open however, limiting the possible impact upon trade.

Regarding strikes, unions representing both Royal Mail and Network Rail workers have called off planned actions. Dave Ward, the general secretary of the Communication Workers Union, commented:

‘Following the very sad news of the passing of the Queen, and out of respect for her service to the country and her family, the union has decided to call off tomorrow’s planned strike action.’

Planned strike action for 15 and 17 September has also been suspended by the National Union of Rail, Maritime and Transport Workers (RMT) while train drivers’ union Aslef likewise postpones its strike on the 15th.

Euro (EUR) Wavers Following 75bps Interest Rate Hike

The Euro (EUR) is trading in a mixed range against its peers today as investors continue to digest yesterday’s decision from the European Central Bank (ECB) to hike interest rates by 75 basis points.

The three-quarter percentage point hike wasn’t set in stone, as markets were divided over whether the central bank would raise interest rates by 50 or 75bps. In opting for the latter, the ECB set a record, hiking by a larger amount than ever before.

Striking a hawkish tone, policymakers indicated there would be more interest rate hikes to come over the next several meetings of the central bank. During the press conference, ECB President Christine Lagarde said the bank is far away from the rate that will return inflation to its 2% target.

Behind such rhetoric are inflated expectations for the Eurozone’s inflation outlook. The ECB has revised its forecast to average 8.1% in 2022 and 5.5% in 2023. Interest rate repercussions aside, the prospect of increasing price pressures could be capping gains for the single currency.

Also dampening support may be the fact of today’s emergency Energy Ministers’ meeting, at which Energy Ministers from across the European Union will come together to discuss the region’s energy crisis.

Reuters reports that lower gas flows from Russia in the aftermath of the country’s invasion of Ukraine have pushed up European gas prices by almost 400% in the past year.

Pound Euro Exchange Rate Forecast: External Factors to Inspire Trading?

Looking ahead, a lack of significant economic data through today’s session leaves the Pound Euro exchange rate to trade on external factors, including markets’ response to the Queen’s death as well as the outcome of today’s EU Energy Ministers’ meeting.

Risk sentiment could also play a role in deciding the direction of GBP/EUR trading, possibly triggering further tailwinds if investors remain bullish.

 

Olivia Evershed

Contact Olivia Evershed


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