Pound Euro Exchange Rate News: GBP/EUR Trades Flat as Ukraine Crisis Escalates

Modified: Tuesday, 1 March 2022 11:35 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Trades Flat as Ukraine Crisis Escalates

GBP/EUR Directionless as Russia Continues to Wage War on Ukraine

The Pound Euro (GBP/EUR) exchange rate is edging higher today as Russia advances further into Ukraine.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.1983, with minimal market movement from today’s opening levels.

Euro (EUR) Subdued by Geopolitical Uncertainty

The Euro (EUR) is muted against the Pound (GBP) today as Russia’s war against Ukraine continues to rage on. This is weighing on EUR due to the war’s close proximity to the bloc and fears over the potential impact on the Eurozone economy.

In effort to cripple Russia’s economy and persuade Vladimir Putin to end the war, the EU has imposed a range of sanctions, including freezing assets of certain banks.

However, due to the Eurozone’s reliance on Russia’s energy supply, investors remain cautious of the potential fallout these sanctions may create.

Russia currently provides 40% of the Eurozone’s energy, any disruption to energy supplies could severely harm the Eurozone’s economy.

Moreover, the European Central Bank’s (ECB) policymaker, Fabio Pancetta, delivered a dovish speech yesterday.

Pancetta said:

‘There are forces at play that could delay the recovery and contain underlying price pressures, and others that could lead to accelerating inflation. Policy mistakes in either direction could push the economy onto an unfavourable path.

‘Faced with such uncertainty, there is a case for the central bank to accompany the recovery with a light touch, taking moderate and careful steps in adjusting policy, so as not to suffocate the as yet incomplete recovery.’

This is easing rate hike bets and weighing on the single currency’s demand.

In addition, the Eurozone’s latest manufacturing PMI underperformed.

February’s final reading printed at 58.2, down from 58.7 in January and missing preliminary forecasts for a more modest drop to 58.4 and placing additional pressure on the Euro this morning.

Pound (GBP) Mixed Amid Geopolitical Tensions

The Pound (GBP) is directionless against the Euro (EUR) this morning as the Ukraine crisis dominates markets.

Similar to EUR, GBP is feeling the pressure from the Russia-Ukraine war.

The Bank of England (BoE) has recently promised to support the UK government’s decision to impose sanctions onto the attacking country.

This has eased rate hike bets and driving many investors towards safe-haven currencies.

Furthermore, the BoE consumer credit for January slipped to £0.608 billion, down from December’s £0.817 billion and significantly lower than the forecast £1.05 billion, with UK consumers becoming increasingly cautious in the face of an impending cost-of-living crisis.

Adam Hoyes at Capital Economics said:

‘A muted rise in consumer credit suggests that households were fairly cautious at the start of this year. With higher interest rates on the horizon and the cost of living crisis only set to worsen, we wouldn't be surprised after a rebound in February to see credit growth remain weak in the months ahead.’

On the other hand, the final print of UK’s manufacturing PMI beat the forecast and previous reading of 57.3 and published at 58.

This shows growth in the manufacturing industry and is capping Sterling’s losses today.

GBP/EUR Exchange Rate Forecast: Geopolitical Unrest to Remain in Spotlight

The Ukraine crisis will continue to act as a key catalyst of movement for the Pound Euro exchange rate for the foreseeable future.

If Vladimir Putin responds to the West’s sanctions by imposing restrictions on the Eurozone’s energy supply, the single currency is likely to struggle.

This afternoon however, the Euro may be bolstered by the publication of Germany’s consumer price index which is expected to report inflation climbed from 4.9% to 5.1%.

Meanwhile, the Pound may be influenced by speeches from BoE policymakers, Michael Saunders and Catherine Mann, this evening.

Should they deliver a broadly dovish tone, it is likely to weigh on GBP exchange rates.

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