GBP/EUR Exchange Rate Makes Small Gains Ahead of Chancellor’s Key Meeting
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning following a small uptick during the Asian trading session. UK Chancellor Kwasi Kwarteng is due to meet bank bosses today to discuss the current crisis in Pound (GBP) sentiment, potentially inspiring some movement.
At the time of writing, GBP/EUR is trading at €1.1218, up 0.2% from today’s opening levels.
Pound (GBP) Remains Volatile as Investors Brace for Recession
The Pound managed to climb slightly during the Asian session, but remains under heavy pressure today following yesterday’s dramatic fall. UK government bonds are also on track for their worst month on record.
Sterling sentiment is very weak given current affairs in the UK: the UK’s mini-budget announcement on Friday was met with widespread criticism and forecasts of economic turmoil as experts remarked that borrowing levels proposed were unsustainable.
GBP traders were given some hope yesterday by indications that the Bank of England (BoE) may hold an emergency meeting to raise interest rates, or else that the UK government might announce an amendment to the mini-budget.
Such hopes were dashed, however, as the BoE said it would make a full economic assessment at the next policy meeting in November. Moreover, the Treasury told markets the Chancellor would present a medium-term fiscal plan on 23 November, leaving Sterling in limbo.
Following the Bank of England’s failure to intervene, the Pound dropped by 2 cents against the US Dollar (USD), approaching the record low of $1.03 hit overnight.
Charlie Bean, former Deputy Bank Governor, commented:
‘On this occasion if I had still been at the bank in my role as deputy governor I certainly would have been counselling the governor that I think this is one of those occasions where it might have made sense (to call a meeting).’
Euro (EUR) Struggles to Gain despite Improving Risk Sentiment
The Euro (EUR) is subdued this morning despite an improvement in general market sentiment. Following news from China that several of the country’s big fund managers and brokers have been asked to help stabilize the stock market, risk flows improved.
Reflecting the more upbeat mood, European stocks – the Euro Stoxx 600 and Germany’s DAX 30 – gained as the European session opened.
The US Dollar uptrend slowed given the ‘Greenback’s highly overbought conditions, also making way for Euro gains, but strength in the single currency was tempered by ongoing energy woes.
Analysts at Nordea bank observed:
‘The energy price shock has and will continue to impact the industrial sector, leading to a negative terms-of-trade shock for the Eurozone. Goods that were previously produced in Europe will now have to be imported from countries elsewhere.’
Also weighing upon market mood and subsequently capping gains for EUR against its safe-haven peers is a continuation of aggressive rhetoric from Russia. The country’s security council deputy chairman argues Russia has the right to use nuclear weapons if necessary.
GBP/EUR Exchange Rate Forecast: Central Bank Speakers to Inspire Movement?
Looking ahead, a speech later today from Monetary Policy Committee (MPC) member and Chief Economist Huw Pill could lend support to the Pound, if he outlines how the BoE may help support the British economy. The speech will focus on ‘Economic and Monetary Policy Challenges Ahead’.
Elsewhere, European Central Bank (ECB) President Christine Lagarde is also due to speak. Hawkish rhetoric from the ECB head could boost the Euro, weighing upon the GBP/EUR exchange rate.