Pound Euro (GBP/EUR) Exchange Rate Remains on the Defensive
(Updated 16:00, 18/10/22) The Pound Euro (GBP/EUR) exchange rate managed to recoup some losses this afternoon, although it remains down on the day. At the time of writing, GBP/EUR is trading around €1.1490, up from today’s low of €1.1450 but still 0.3% below opening levels.
Pound Sterling (GBP) seemed to enter oversold conditions earlier today after sliding sharply in the morning. The initial downside came as yesterday’s optimism continued to fade, with markets once again growing worried about political and financial instability in the UK.
GBP managed to attract some dip-buying, but it remains in a weakened position.
It looks as though the recent volatility in the Pound – which is increasingly behaving like an emerging-market currency – is set to continue, despite the UK government scrapping most of the ill-received mini-budget tax cuts.
Meanwhile, the Euro (EUR) has also seen some mixed movement today, though it is clinging on to its gains against the Pound.
Initially driving movement was this morning’s German data, which was poor but still better than expected.
News from Ukraine has kept some pressure on EUR. Russia continues to bombard Ukrainian cities with rockets and kamikaze drones, targeting civilian and energy infrastructure.
The single currency’s negative correlation with the US Dollar (USD) seems also to have impacted the Pound Euro pair. An early decline in USD corresponds with EUR’s rise, while the Dollar’s renewed strength trimmed the Euro’s gains.
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Pound Euro (GBP/EUR) Exchange Rate Falters as UK Uncertainty Continues
The Pound Euro (GBP/EUR) exchange rate headed sharply lower this morning as the recent rally following the government’s U-turn fizzled out.
At the time of writing, GBP/EUR is trading at around €1.1465, down almost 0.6% from its overnight high.
Pound (GBP) Drops as Financial Instability Remains
The Pound (GBP) fell sharply today as the government’s recent U-turn on the mini-budget failed to provide a lasting tailwind.
Yesterday, GBP/EUR surged to a seven-week high after the new Chancellor, Jeremy Hunt, scrapped almost all of the tax-cutting measures in the failed mini-budget. But while this initially cheered markets, the optimistic mood fizzled out fairly quickly.
The mini-budget – which contained huge unfunded tax cuts – damaged both the government’s credibility and the UK economy, both of which were already weakened. Even though most of the measures have been reversed, the UK faces economic and political uncertainty.
In addition, Hunt warned of higher taxes and spending cuts as he grapples with the growing cost of government debt. Such measures are likely to contribute to an impending downturn in the UK economy.
Another factor hitting the Pound today is fresh confusion over the Bank of England’s (BoE) policy plans.
Earlier this morning, the Financial Times reported that the bank would delay the planned sale of government bonds – known as quantitative tightening – to maintain stability in gilt markets.
However, the BoE quickly refuted this. A bank spokesperson gave a brief statement, saying:
‘This morning’s FT report that the BoE has decided to delay MPC gilt sales (‘QT’) is inaccurate.’
Bond markets – which had stabilised following Hunt’s mini-budget overhaul yesterday – have begun to slip again. This raises fresh fears over UK financial stability, which is pressuring the Pound.
Euro (EUR) Firms as German Data Beats Forecasts
Meanwhile, the Euro (EUR) enjoyed some success this morning after better-than-expected German data.
Germany’s ZEW economic sentiment index for October showed an unexpected improvement. Instead of dropping to an all-time low, morale in Europe’s largest economy edged up from -61.9 to -59.2.
But despite the surprise rise in sentiment, the latest reading shows that investors remain extremely pessimistic about the country’s outlook. As a result, EUR’s gains are limited.
Pound Euro Exchange Rate Forecast: Inflation Readings in Focus
As today’s session progresses, domestic UK news is likely to drive the Pound. Any new announcements from government or the BoE could contribute to ongoing GBP volatility.
Meanwhile, Russia-Ukraine news could affect EUR exchange rates. Russia continues to launch deadly kamikaze drone attacks on civilian and energy infrastructure. Further escalations could hurt the single currency.
Tomorrow brings the latest UK inflation rate. Economists expect headline inflation to have edged up from 9.9% to 10% in September. If the CPI prints true, GBP could climb on BoE rate rise bets. If it unexpectedly eases, the Pound may fall.
The final Eurozone inflation rate is also due out tomorrow. As this is a confirmatory reading, it may be less impactful that the UK’s. Still, any unexpected results could affect EUR.