Pound Euro Exchange Rate News: GBP/EUR Fluctuates as Gas Security Fears Threaten a Recession

July 27, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Fluctuates as Gas Security Fears Threaten a Recession

Euro (EUR) Under Pressure from Looming Recession Fears

The Euro (EUR) is wavering as global risk-off sentiment returns after Russia cuts gas supplies even further from Europe, as the Euro edges towards a recession.

Troubling news from Gazprom, state-owned Russian energy supplier, as they have cut gas flows by another 50%. Citing maintenance issues as the cause for slowing flow from the current 40% capacity but has since been refuted. Head of the European Commission, Ursula von der Leyen, has said:

‘The announcement by Gazprom that it is further cutting gas deliveries to Europe through Nord Stream 1, for no justifiable technical reason, further illustrates the unreliable nature of Russia as an energy supplier.’

Despite EU members agreeing on a 15% reduction by this winter, many fear that it will not be enough if Russia was to completely cut supplies off. Further gas shortages are significantly weighing on the Euro, and unless the situation is resolved, or alternative supplies are sourced, a recession could well be on the horizon.

Pound (GBP) Wavers amid Political and Social Volatility

The Pound (GBP) is seeing mixed success today as political and social turmoil look to offset the tailwind of a 50bps rate hike at the next Bank of England (BoE) policy meeting.

Expectations are growing of a bold 50bps interest rate hike as the central bank continue to battle raging inflation. Despite the annual CPI figure hitting fresh 30-year highs, and the UK economy showing mixed results, investors are confident of the BoE’s accelerating tightening cycle.

Elsewhere, the ‘summer of discontent’ is underway as railway strikes disrupt travel across the UK. More than 400,000 rail workers walk out as pay disputes continue. With several more strikes planned through the summer, Sterling could come under increased pressure as disruptions continue to rock the country.

Meanwhile, the race for the Conservative leadership rolls on as a second televised debate ended prematurely as presenter Kate McCann collapsed as Rishi Sunak and Liz Truss engaged in a particularly heated argument over NHS funding.

With the two final candidates duelling over various conflicting fiscal plans, investors are increasingly concerned with the growing divide within the Tory party. With both promising tax cuts, Sunak has retreated from his previous stance of ‘unfunded tax fantasies’ and has since vowed to cut VAT on energy bills. However, the Institute for Fiscal Studies (IFS) have said that such a move is risky:

‘If it were genuinely temporary, the fiscal and environmental costs of the policy would be bearable. The biggest risk with the policy is that it would prove politically difficult to restore VAT on energy bills at the end of the 12 months.

‘As a permanent policy, removing VAT on energy bills would be a move in exactly the wrong direction: distorting households’ choices towards more energy use, making it harder to meet the UK’s ‘net zero’ targets and meaning that any reduction in emissions happened in a way that was more costly overall to households than it need be.’

GBP/EUR Exchange Rate Forecast: Crucial Eurozone Data to Boost the Pound?

Looking ahead, the Pound Euro exchange rate could trade on market sentiment as data remains quiet until the end of the week. A flurry of crucial Eurozone data could see further fluctuations as GDP figures and inflation data are set to print.

Meanwhile, data remains thin on the ground for Sterling, so market sentiment could be the sole inspiration for further movement. Political volatility could continue to weigh on the Pound as the race for Boris Johnson’s replacement rattles on.

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TAGS: Pound Euro Forecasts