Pound Euro Exchange Rate News: GBP/EUR Subdued amid Continued UK Economic Uncertainty

May 30, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Subdued amid Continued UK Economic Uncertainty

Pound (GBP) Muted amid Political and Economic Woes

The Pound (GBP) is softening against the Euro today amidst some concerns over the fiscal support package offered by Chancellor Rishi Sunak last week.

While GBP investors have welcomed the £15bn cost-of-living assistance offered to households, concerns are growing for the lack of support offered to small businesses. The Federation of Small Businesses (FSB) Chair Martin McTague says:

‘They are facing something like twice the rate of inflation for their production prices, and it’s a ticking timebomb. They have got literally weeks left before they run out of cash and that will mean hundreds of thousands of businesses, and lots of people losing their jobs.’

Three-quarters of small and medium-sized businesses are concerned with the long-term impact of the current cost-of-living crisis. Without further support, the expensive emergency assistance given through the pandemic would effectively be wasted. McTague added:

‘The chancellor spent approximately £45bn making sure those businesses survive the Covid crisis. Are we seriously expecting him now to abandon them just as they’ve managed to get through one crisis and effectively lose that money for the taxpayer?’

Further heaping pressure on the Pound is the fallout from the ‘partygate’ scandal.

Prime Minister Boris Johnson came under intense criticism on Friday after he announced a revision to the ministerial code that normally dictates a breach of code would be met with resignation, now could apologise, or forfeit pay instead.

Prolonged political uncertainty could further weigh on the Pound moving forward.

The Euro (EUR) Stutters as Economic Sentiment Tumbles

The Euro (EUR) is wavering today as economic sentiment in the Eurozone remains at a one-year low as high inflation and the prolonged Ukraine war weigh on investor morale.

The Economic Sentiment Indicator (ESI) was little changed at 105 from 104.9 in April. General confidence in the Eurozone remains low as the ongoing war in Ukraine and soaring inflation keep levels not seen in over a year.

The darkening economic landscape will only serve to weigh heavy on the Euro going forward.

Further capping the Euro has been the dovish comments from European Central Bank’s Chief Economist Philip Lane as he favours a 25bps rate hike, rather than the 50bps hike that some of his colleagues have pushed for.

With the EU summit currently underway, Euro investors will be on edge with any updates out of Brussels. A potential ban on Russian oil and gas could be on the cards again. Ahead of the meeting, the EU’s Foreign Policy Chief Josep Borrell said that EU members should be able to reach an agreement on new sanctions against Russia:

"We need to decide unanimously. There were tough talks yesterday afternoon, as well as this morning. I think that this afternoon, we will be able to offer to the heads of the member states an agreement."

The ban could apply pressure to the Euro is it raises fresh concerns over the EU’s energy security.

GBP/EUR Exchange Rate Forecast: Major Euro Data to Weigh on Sterling?

With UK data thin on the ground, movement in the Pound Euro exchange rate may be driven primarily by the publication of the latest release of Eurozone inflation figures on Tuesday.

Economists forecast inflation in the bloc will have continued to climb this month, particularly after German inflation accelerated at a faster-than-expected pace.
This could help bolster expectations for the ECB’s July interest rate hike and help to prop up demand for the Euro.

Elsewhere, with EU leaders meeting in Brussels to discuss providing additional support for Ukraine, new sanctions against Russia are back on the table. With Hungary vetoing the last sanction proposal, a breakthrough could see the energy crisis worsening if Russian exports are outright banned.

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TAGS: Pound Euro Forecasts