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Pound Euro (GBP/EUR) Exchange Rate Climbs as Fuel Concerns Fade

September 30, 2021 - Written by John Cameron

GBP/EUR Regains Ground as Fuel Supplies Stabilise

The Pound Euro (GBP/EUR) exchange rate has strengthened this morning, as the UK’s fuel supply crisis is back under control and the UK posts some positive data.

Meanwhile, German employment data printed below forecasts, which may be denting EUR exchange rates.

Pound (GBP) Recovers as Fuel Crisis Subsides

Simon Clarke, Chief Secretary to the Treasury, told Sky News this morning that the UK’s fuel supply crisis is easing. Clarke said:

’We are in a situation now where more fuel is being delivered than is being sold, so that crisis is now absolutely something which is back under control.’

Clarke also revealed, in an interview on the BBC’s Today Programme, that the army is ready to be deployed to resolve any remaining shortages:

‘The army is on standby to help support the commercial operations and, of course, we’ve seen some changes, including, notably, allowing some MoD driving instructors to help boost the number of tankers...

‘There’s 150 drivers on standby to help support operations as required.

‘This is designed to help buttress the commercial operation which is driving down the pressures that we’ve seen on forecourts.’

In addition, the UK’s GDP growth rate and business investment data for the second quarter of this year were both revised up. GDP growth came in at 5.5%, up from 4.8%, while business investment printed at 4.5%, up from 2.4%.

The revised data shows that the UK economy recovered more rapidly than previously thought during the April to July period.

However, GBP’s gains may be capped by concerns that the UK’s supply chain crisis may continue to get worse, leading to more shortages and higher prices over the Christmas period.

Such an event could potentially damage the UK economy by denting consumer spending during the holiday season, when economic activity is usually high.

Euro (EUR) Dented by German Data and ECB Dovishness

The Euro (EUR) has slipped against the Pound today after German employment data this morning fell short of economists’ expectations.

German unemployment dropped by 30,000 in September, versus predictions of a 33,000 drop, while the unemployment rate remained at 5.5%, though it was forecast to fall to 5.4%.

While the results were only marginally below what was expected, the disappointment seems to have dented EUR.

Meanwhile, the single currency also seems to be pressured by the European Central Bank’s (ECB) dovish approach to monetary policy, especially with regards to how it differs to the Federal Reserve and the Bank of England (BoE).

While the Fed and the BoE are expected to raise interest rates next year to help tackle overheating inflation, the ECB is unlikely to implement a rate hike until 2024.

ECB President Christine Lagarde has remained steadfast in her conviction that the current soaring inflation in Europe is due to low base effects and temporary factors.

However, many economists are growing more fearful of the prospect of stagflation, as inflationary pressures continue to build while there are signs of economic slowdown.

The ECB’s dovish approach, and fears of a monetary policy misstep, are weighing on the Euro today.

GBP/EUR Exchange Rate Forecast: Can Sterling Sustain its Upside?

Looking ahead, it's unclear whether GBP/EUR will be able to maintain its upward trajectory. As the UK’s fuel situation continues to improve, GBP appeal may also recover. However, there are also deeper supply chain issues that are undermining the UK economy. Any new developments could see GBP plummet again.

Turning to the Euro, Germany’s latest inflation rate this afternoon could trigger some movement. While rising inflation has tended to boost the currency this year, as it indicates strong economic recovery and increases the likelihood of tighter monetary policy, things could take a different turn.

With the ECB seemingly committed to its loose approach to policy, and with rising inflation now looking more like a bane than a boon, Germany’s figures may weigh on EUR. German inflation is expected to rise from 3.9% to 4.2% – a fresh 28-year high.

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