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Pound Euro Exchange Rate News: GBP/EUR Rangebound as UK Cost-of-Living Crisis Remains in Focus

May 27, 2022 - Written by John Cameron

GBP/EUR Rangebound on UK Cost-of-Living Woes

The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range today as the UK’s cost of living crisis is back in the spotlight as investors digest Chancellor Rishi Sunak’s new fiscal support package.

At the time of writing, the GBP/EUR exchange rate is trading at approximately €1.17.

Pound (GBP) Muted as Investors Digest Fiscal Support Package

The Pound (GBP) is flat against the Euro today as GBP investors continue to assess the potential impact of the UK’s cost-of-living support package.

Economists have previously warned the UK economy may suffer a recession in the third quarter of this year, further highlighted by the recent publication of some dire forecasts from the Bank of England (BoE). This comes as household incomes struggle to keep up with surging inflation – having reach 9% in April – and rising energy bills.

In a bid to alleviate some of the pressure on households Sunak unveiled a £15bn package on Wednesday. Every UK household will receive a one-off payment of £400 whilst 8m households on low incomes will receive £650.

In his statement yesterday, Sunak said that ‘we will get through this … And we will turn this moment of difficulty into a springboard for economic renewal and growth.’

Analysts are hopeful that the extra support could help the UK avoid a recession.

Deutsche Bank’s chief UK economist Sanjay Raja, suggests:

‘In total, Chancellor Sunak has now pushed close to 1.5% of GDP in support measures to help households through one of the worst income shocks since the Second World War.

‘The modest lift in GDP should support our view that the UK will just about avoid a technical recession around the turn of the year.’

On the other hand, some GBP investors are wary about the potential impact the support package could have on investment and borrowing.

Euro (EUR) Mixed amid EU Energy Concerns

The Euro is subdued against the Pound today amidst ongoing concerns over European energy security.

This comes as the EU pushes forward with its plan to ban Russian oil imports.

This has caused outcry amongst many landlocked Eurozone countries, however the EU maintains that it’s the morally correct action to take amid the Russia-Ukraine war. The European Commission President, Ursula von der Leyen, is sceptical an agreement on the matter will be reached at the EU leaders summit next week.

The EU’s pursuit – and current lack – of alternative oil supplies is unnerving EUR investors.

On the other hand, recent hawkish remarks made by European Central Bank (ECB) policymakers is somewhat aiding EUR exchange rates.

According ECB policymaker Klaas Knot, a 50-basis point hike is not ‘off the table’ at the bank’s July policy meeting.

This comes as inflation across the bloc jumped to 7.5% in April, and is likely to continue rising in the near-term.

However, the aggressive action expected from the ECB has been largely priced-in, thus any support offered to the single currency will be limited.

GBP/EUR Exchange Rate Forecast: Eurozone Inflation Takes Centre Stage

Looking ahead, the Pound Euro exchange rate is likely to be impacted by the Eurozone’s latest inflation reading.

Next week, the flash CPI reading for the Eurozone is expected to report inflation increased from 7.4% to 7.6% in May.

If inflation continues to rise, it may bolster ECB interest rate hike bets and, in turn, boost demand for the Euro.

On the other hand, the Pound is likely to remain susceptible to the country’s cost-of-living crisis, as well as UK political developments, namely Brexit.

Should the UK government make unilateral amendments to the Northern Ireland protocol, as previously threatened, it may weigh on GBP/EUR.

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