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Pound Euro Exchange Rate Boosted as UK PM Johnson Resigns

July 7, 2022 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Climbs after Johnson Announces Resignation

The Pound Euro (GBP/EUR) exchange rate is climbing higher today. The exchange rate has found support after UK Prime Minister Boris Johnson confirmed his resignation earlier today. The currency pair may also be benefitting from fears of a recession in the Eurozone amid the trading bloc’s ongoing energy crisis.

At time of writing the GBP/EUR exchange rate is at around €1.1786, which is up roughly 0.7% from this morning’s opening figures.

Pound (GBP) Bolstered as Johnson Set to Remain Caretaker PM

The Pound (GBP) is making some gains against its competitors today following confirmation of PM Johnson’s resignation. The move helped to quell some uncertainty within the markets. Fears of a protracted leadership contest with Johnson as a caretake PM could continue to dent confidence in the Pound, however.

Johnson’s resignation came after a turbulent few days in Westminster. Nearly 59 MPs including prominent cabinet members resigned in protest at Johnson’s premiership. Speaking in his resignation speech in front of 10 Downing Street, Johnson said that he was ‘sad to be giving up the best job in the world.’

Speaking on Johnson’s resignation, David Muir of Moody’s Analytics, said:

‘Whoever takes over will need to re-focus policy on addressing the key risks to the economy, such as the cost of living squeeze, and also the UK’s longer term challenges, in particular, measures to take forward the levelling up agenda and to mitigate risks from climate change.’

Sterling could also be gains off the back of hawkish figures from Bank of England (BoE) policymaker Catherine Mann. Speaking on Thursday, Mann signalled that doubts over the length of recent inflation surges should push central banks to front-load interest rates.

Mann’s comments echo those made by Huw Pill, a member of the BoE’s monetary policy committee (MPC), earlier in the week. Pill also signalled that the central bank should remain committed to additional interest rate hikes in the future.

Gains for the Pound could be capped however by continued fears over the UK government’s approach to the Northern Ireland Protocol.

Euro (EUR) Tumbles amid Eurozone Recession Fears

The Euro (EUR) is falling against its allies today. Concerns over a potential energy crisis within the trading bloc have seen recession fears plague the single currency.

Economists remain concerned that Russia could limit gas supplies over sanctions issued in response to the country’s invasion of Ukraine. Europe remains heavily reliant on Russia for its energy supplies. Additionally, falling demand in the US as well as soaring energy and food prices have also contributed to recession anxieties.

George Buckley, economist at Nomura investment bank, said:

‘Europe is struggling with conditions that are very much global in nature (surging energy prices and inflation, rising geopolitical risks and uncertainty), which leads us to believe that European economies will suffer the same fate – recession – as the US.’

Strikes in Norway earlier this week threatened natural gas supplies and pushed prices higher. Whilst the labour dispute was resolved following government intervention, maintenance on the Nord Stream 1 gas pipeline could push prices higher amid supply shortages.

GBP/EUR Exchange Rate Forecast: Will Johnson’s Resignation Lead to Further Economic Uncertainty?

Looking ahead for the Pound, the currency will see no significant data over the rest of the week. The Pound may be affected by the aftereffects of Johnson’s resignation. Further developments concerning the Northern Ireland Protocol could also prompt movement in Sterling.

For the Euro (EUR), a speech from ECB President Christine Lagarde could push the single currency higher. Investors will be looking to Lagarde for confirmation that the central bank will commit to a series of interest rate hikes in the coming months.

Fears of a recession in the Eurozone could keep pressure on EUR however and cap any gains.

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