Pound Euro (GBP/EUR) Exchange Rate Recovers amid Russia-Ukraine Fears
(Updated 16:30, 25/1/23) The Pound Euro (GBP/EUR) exchange rate rebounded from a one-week low today as worries about a possible escalation in the Russia-Ukraine war pressured the Euro (EUR).
Germany confirmed that it would send 14 Leopard 2A6 tanks to Ukraine, after weeks of hesitancy, while reports also suggest the US, Finland, Spain and the Netherlands will also donate main battle tanks (MBTs). The UK and Poland had already committed to sending MBTs to Ukraine.
In response, the Russian embassy in Germany accused Berlin of taking the war ‘to a new level of confrontation’ and called the decision ‘extremely dangerous’. Fears that the donation of tanks could lead to Russian retaliation and an escalation in the war weighed heavily on the Euro.
Meanwhile, the Pound (GBP) made a surprising recovery. Bank of England (BoE) interest rate rise bets may have lent Sterling some support, with markets betting on a 75% chance of a half-point hike at the bank’s meeting a week tomorrow.
At the time of writing, the Pound Euro exchange rate has risen to €1.1346, up more than 0.4% from today’s low of €1.1294.
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Pound Euro (GBP/EUR) Exchange Rate Mixed amid German Data and BoE Rate Bets
The Pound Euro (GBP/EUR) exchange rate has fluctuated this morning as it attempts to recover off a one-week low following yesterday’s dire UK PMIs. However, upbeat German data is lending the Euro (EUR) some support.
At the time of writing, GBP/EUR is trading at around €1.1332, virtually unchanged from this morning’s opening levels.
Euro (EUR) Subdued despite Upbeat German Data
The Euro is unable to find a clear direction today as investors digest Germany’s latest Ifo business climate report.
The indicator rose, as expected, from 88.6 in December to 90.2 in January. This was the fourth consecutive month of improvement and the highest reading in seven months.
Businesses in Europe’s largest economy are growing more optimistic about the year ahead, as supply issues ease, inflation cools, and the Eurozone economy regains positive momentum.
However, the business assessment of the current situation unexpectedly decreased, which may be capping gains. The current conditions score of the index slipped from 94.4 to 94.1, rather than rising to 95.
While the data is broadly positive, it is rather lacklustre overall. EUR bulls were perhaps hoping for a stronger-than-expected reading, considering the positive data the Euro has enjoyed in recent weeks. This disappointment seems to have taken the wind out of the single currency’s sails.
Pound (GBP) Attempts Recovery amid BoE Rate Rise Bets
Meanwhile, the Pound (GBP) is licking its wounds today, wavering near a one-week low, following yesterday’s PMI data.
Alarmingly, the UK’s services PMI fell to a two-year low, showing a deeper-than-expected contraction in activity. Sterling slumped in response.
Today, the Pound is struggling to recoup those losses as a lack of data leaves the UK currency without much upside support.
Bank of England (BoE) bets are perhaps limiting losses for GBP. Markets are currently betting on a 75% chance of another 50bps rate hike at the bank’s meeting next week.
Pound Euro Exchange Rate Forecast: Domestic News to Drive Movement
Looking ahead, a lack of notable economic data through the rest of today’s trade may mean limited movement in the Pound Euro pairing.
GBP investors may turn to current affairs in the UK for fresh trading impetus. As the UK’s economic outlook darkens, the country faces multiple challenges. Strike action continues to intensify as workers stage walkouts to protest below-inflation pay rises, while high energy costs continue to affect households and businesses.
Any new headlines detailing any of the headwinds currently battering the UK economy could weigh on Sterling.
Meanwhile, news about the Russia-Ukraine war could impact the common currency. Western allies are on the cusp of sending battle tanks to Ukraine after weeks of disagreement and discussions. While this may be a positive development for the defenders, there are fears that Russia will retaliate and thereby further escalate the conflict.
The Eurozone is particularly exposed to the economic and political fallout from the war, so any signs of a deteriorating situation could weigh on the Euro.