Pound Euro (GBP/EUR) Exchange Rate Holds the High Ground as Sunak Restores Credibility
(Updated 14:30, 26/10/22) The Pound Euro (GBP/EUR) exchange rate has eased off an eight-day high hit earlier in the session, but it remains strong, wavering in the region of €1.155.
The strength in the Pound (GBP) comes as Rishi Sunak take the reins of the UK government, a move that has restored market confidence in the country.
News that the Treasury would delay its fiscal statement by two weeks had little effect on the current GBP optimism. Markets seemed to agree that the situation had fundamentally changed since the reversal of the mini-budget, and the emergency fiscal statement was far less urgent than it had been. Rather than rushing through measures, the government wants to fine-tune its strategy to steer the UK economy through perilous waters.
As I said on @skynews a moment ago, so far markets seem sanguine about the decision to delay the fiscal statement. No panic. Normally you’d take that for granted but not after the past few weeks… pic.twitter.com/tTGjKxO7L3
— Ed Conway (@EdConwaySky) October 26, 2022
Ben Zanako, an economist at the Institute for Fiscal Studies (IFS), commented:
‘A delay is sensible. There’s a lot riding on this, so important to get the details right. But the challenge remains the same: find a way to somehow reconcile 2019 manifesto public service objectives with likely cuts to public spending.’
Meanwhile, weakness in the US Dollar (USD) continues to provide some support for the Euro (EUR), due to the currencies’ negative correlation.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Continues Climb as New PM Raises Hopes
The Pound Euro (GBP/EUR) exchange rate rose to an eight-day high this morning as UK markets remain optimistic about the country’s new Prime Minister, Rishi Sunak.
At the time of writing, GBP/EUR is trading at around €1.1551, its highest level since 18 October.
Pound (GBP) Extends Upside amid Political Optimism
The Pound (GBP) continued its recent rally this morning as hopes of political and financial stability in the UK cheered GBP investors.
This optimism comes as Rishi Sunak took his place at Number 10 yesterday after winning the Conservative Party leadership election. Seen as a competent and potentially unifying figure, Sunak has restored some of the government’s credibility after his predecessor’s damaging mini-budget last month.
Sunak’s first act in office was to assemble his cabinet. He brought in some heavy-hitters and experienced politicians, while also trying to ensure that different factions within the divided Tory party were represented.
Although it’s very early days, Sunak has so far made all the right moves to soothe the febrile markets. As a result, Sterling is on the up today.
Euro (EUR) Shored Up by USD Weakness
Meanwhile, the Euro (EUR) is also finding support today, despite a lack of economic data. This is seeing it gain against some of its rivals and is tempering the single currency’s downside against the Pound.
One factor bolstering EUR is its negative correlation to the US Dollar (USD), which is continuing to face selling pressure this week amid a risk-on market mood and softening expectations for Federal Reserve interest rate hikes.
EUR may also be enjoying increased odds of another large interest rate rise at the European Central Bank (ECB) meeting tomorrow.
Pound Euro Exchange Rate Forecast: Can Sterling Stay Strong?
Looking ahead, both Eurozone and UK data is in short supply today. Therefore, it’s likely that both currencies will continue to trade in relation to the factors affecting them this morning.
For the Pound, political optimism could continue to provide support. However, Sterling has become increasingly volatile in recent weeks so we may see GBP pare some gains.
In addition, Sunak faces his first Prime Minister’s Questions today. A strong performance here could keep the Pound afloat, but if there are signs of discontent among some Tory MPs then investor confidence could waver.
Furthermore, there are rumours that Sunak may delay the planned Halloween fiscal statement. If he does, he will need to carefully communicate this to avoid spooking markets.
As for the Euro, Russia-Ukraine news may have an impact on the single currency. Any new escalations in the war could sap support for EUR.