Pound Euro (GBP/EUR) Exchange Rate Extends Downside as UK Concerns Grow
(Updated 16:05, 10/01/2023) The Pound Euro (GBP/EUR) exchange rate continued to slip today as the UK’s outlook grew even gloomier.
The Pound (GBP) was initially on the back foot following last night’s announcement that the government would reduce its energy support for businesses. Many industry figures warned that some UK firms could collapse or cease trading as a result.
More downbeat news maintained the pressure on Sterling. The dispute between the government and unions representing striking public sector workers escalated, with the government publishing plans for anti-strike legislation. Union leaders have fiercely criticised the bill, with some groups now planning a coordinated ‘day of action’ to increase pressure on the government to improve pay offers.
As strike action intensifies, it will likely have an increasingly negative impact on the UK’s already-struggling economy.
Meanwhile, hawkish comments from the European Central Bank’s (ECB) Isabel Schnabel gave the Euro (EUR) a modest lift. However, Russia-Ukraine worries continue to cap gains.
At the time of writing, GBP/EUR is trading at around €1.1322, which is 0.25% down on the day.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Softens amid Cautious Trade and UK Energy Worries
The Pound Euro (GBP/EUR) exchange rate is subdued today as a risk-off mood and worries about the UK economy are maintaining pressure on Sterling. However, the Euro’s (EUR) upside seems severely limited.
At the time of writing, GBP/EUR is trading at €1.1329, down almost 0.2% on the day.
Pound (GBP) Struggles as Energy Support Scaled Back
The Pound (GBP) is on the back foot this morning as GBP investors seem glum about the prospects of the UK economy.
With Britain now likely in recession, the challenges for UK businesses and households continue to pile up. Last night, the Treasury announced that it would be hugely scaling back energy support for businesses from April.
Martin McTague, National Chair of the Federation of Small Businesses (FSB), called the reduced support package a ‘massive disappointment’ and warned that many small businesses could collapse or close up shop as a result.
Other commentators agree. Alex Hall-Chen, a policy adviser at the Institute of Directors (IoD), said:
‘The design of the new scheme will also provide less certainty for businesses in budgeting. Given that future energy costs will no longer be able to be projected with any degree of confidence, the willingness of directors and auditors to sign off their entities as going concerns will be impaired. In the case of the most vulnerable SMEs, this may affect insolvency assessments and lead some companies to cease trading altogether.’
The government’s decision to reduce energy subsidies comes as it tries put public borrowing back on a sustainable footing following the calamitous mini-budget from Liz Truss and Kwasi Kwarteng in September, which cost the government an estimated £30bn.
Euro (EUR) Muted despite Tailwinds
Meanwhile, the Euro’s gains against the Pound are limited, despite a cautious market mood giving the safer common currency an edge against its riskier UK rival.
Worries about the Russia-Ukraine war may be keeping EUR investors wary. Analysts fear that Russia may launch a fresh attack on Ukraine in the coming weeks, perhaps even once again attempting to take the capital Kyiv.
Hawkish comments from European Central Bank (ECB) policymaker Isabel Schnabel have so far had little effect on the Euro. Schnabel said that rates must rise significantly and steadily, heading into restrictive territory. These comments could help EUR as the day progresses.
Pound Euro Exchange Rate Forecast: Sterling to Remain on the Back Foot?
There’s no UK or Eurozone economic data due out for the remainder of the day. As a result, market risk appetite could influence the Pound Euro pair. If the market mood remains downbeat, the riskier Pound could continue to lose ground against the safer single currency.
Domestic UK news could also impact Sterling today. Disputes between the British government and various unions representing public sector workers continue, with the months-long wave of industrial action looking set to intensify. Any more downbeat headlines could further hurt the Pound.
Meanwhile, EUR investors could keep an eye on developments in the Russia-Ukraine war. Any signs of further escalation may put pressure on the Euro.