July 6, 2022 - Written by John Cameron
STORY LINK Pound Euro Exchange Rate News: GBP/EUR Climbs Modestly as Boris Johnson Fights for His Future
Pound (GBP) Strengthens amid Brewing Political Storm
The Pound (GBP) is enjoying modest success against the Euro today despite a growing number of Tory MPs resigning in the wake of Boris Johnson’s latest scandal that threatens his premiership.
Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid both handed in resignations, both citing that Johnson has lost his ability to run the country competently. Sunak said in his resignation letter:
‘However, the public rightly expect government to be conducted properly, competently and seriously. I recognise this may be my last ministerial job, but I believe these standards are worth fighting for and that is why I am resigning.’
The continued political uncertainty that has plagued the UK for some time looks set to continue and could weigh heavily on the Pound going forward.
Elsewhere, lending support to the Pound is the Bank of England (BoE) hawkish comments on tackling inflation. BoE Chief Economist Huw Pill has pledged that that central bank will deliver inflation back to its 2% target. He also went on to state that he wanted the public to know that the BoE’s single purpose now is to bring inflation down forcefully, hinting at more aggressive rate hikes.
Pill said: ‘The statement reflects both my willingness to adopt a faster pace of tightening than implemented thus far in this tightening cycle, while simultaneously emphasizing the conditionality of any such change.’
BoE Deputy Governor Jon Cunliffe also added to the hawkish comments and reassured investors that the central bank will not allow high inflation to get embedded. However, he did on to admit that the UK economy was slowing down.
Euro (EUR) Slides as Mounting Recession Fears Weigh Heavily
The Euro (EUR) is under increased pressure today barely holding above a two-and-a-half-week low as a worsening global growth outlook and a looming energy crisis edged the Euro area towards a recession.
With soaring inflation and growing energy security fears, investors are concerned as Russia threatens to cut gas supplies to Europe. A resulting gas shortage would lead to industry disruptions across the region at a time where supply issues were already impacted by the Ukraine invasion.
Analysts at Commerzbank warn that the looming gas crisis in Europe is a genuine concern, as investors become increasingly nervous around the single currency:
‘There are good reasons to assume that Russia will continue to reduce its gas exports to Europe. Whether the imminent servicing of the Nordstream pipeline will be the occasion to do so, is impossible to tell.
‘If the Russian leadership is good at something, then that is to surprise with the timing of its decisions. But the general conclusion remains: the risk of a gas crisis in Europe is real.’
Limiting any further losses today came as Germany’s factory orders inched up higher than expected, with a modest rise of 0.1% instead of an expected 0.6% drop. The first recorded growth in the sector in four months gave a modest boost to the Euro. However, despite a 0.2% growth in retail sales for the Euro area, it did miss forecasts of a 0.4% increase, pointing towards a slowdown in the retail sector.
GBP/EUR Exchange Rate Forecast: Souring Market Sentiment to Weigh Further on the Euro?
Looking ahead, the Euro could see further movement as several European Central Bank (ECB) speeches are planned for tomorrow and ECB President Christine Lagarde on Friday. With the increased pressure on the ECB to bring inflation down amid fragmentation and recession fears, any dovish comments could see the Euro plunge further.
Elsewhere, data remains thin on the ground for the Pound for the rest of the week. The ongoing political uncertainty surrounding Johnson’s leadership could weigh on Sterling.
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TAGS: Pound Euro Forecasts