Pound Euro Exchange Rate News: GBP/EUR Remained Choppy amid Mounting Energy Crisis

Modified: Thursday, 25 August 2022 13:05 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Remained Choppy amid Mounting Energy Crisis

Pound (GBP) Undermined by Cost-of-Living Crisis

The Pound (GBP) failed to find much demand on Thursday as a lack of major data releases left Sterling open to the myriad of domestic issues.

With the energy bill cap set to soar beyond 80% in the autumn, increased calls for government intervention to provide fiscal support continues to grow. If the UK government continue to drag their feet in delivering financial aid, the UK’s economy could continue its downward spiral, deterring investors.

Anti-poverty organisations also call for increased assistance before poorer families slip further into poverty. The Child Poverty Action Group (CPAG) are warning that without adequate fiscal support, households on low incomes are at risk of ‘falling through the ice’. Alison Garnham, CPAG Chief Executive, said:

‘With a £1,000 shortfall just for energy bills, many struggling families will fall through the ice this winter unless the government makes more help available fast.

‘Over the next few months families will need extra support that covers their costs and reflects family size, and social security must rise to match inflation from April.

‘Four million children are already in poverty with many others now perilously close to it. Leaving their families to sink cannot be an option.’

If the UK government fail to provide sufficient assistance for the millions of households under increased pressure, the Pound could slide further as investors become increasingly concerned with the state of the UK economy.

However, lending some moderate support to the Pound is growing expectations of another half-point interest rate raise as fears of inflation hitting 18%. City traders have begun placing bets on further bold rate hikes as the Bank of England (BoE) maintains its goal of 2% inflation.

Also supporting the Pound is the news of retailers recording a solid growth in sales for August. Expectations of another slump were comfortably beaten as the Confederation of British Industry (CBI) distributive trades survey rose to the highest level since November 2021 despite inflationary pressures capping consumer spending. Martin Sartorius, Principal Economist at CBI, said:

‘While retail sales returned to solid growth in the year to August, firms remain pessimistic about their business situation over the next three months – to the greatest extent since the first Covid-19 lockdown in 2020. This gloom is reflected in retailers’ investment intentions, which continue to be resolutely negative.’

Euro (EUR) Under Increased Pressure as Gas Prices Soar

The Euro (EUR) succumbed to recession fears once again on Thursday despite a surprising 0.1% growth QoQ in Germany, Europe’s largest economy.

Preliminary readings for Germany’s GDP showed a stalling in the months from April to June but final figures revealed a better-than-expected expansion. Elsewhere, German Ifo business climate index slipped to 88.5, a fresh low since June 2020, but still better than an anticipated 86.8.

However, weighing on the single currency is the troubling news that energy prices have climbed to fresh record highs, further piling pressure on the Euro amid mounting energy security fears. Uncertainty surrounding Russian gas flows look set to continue as the Nord Stream 1 pipeline is set to close for maintenance next week.

A planned three-day shutdown for maintenance is expected, but state-owned Gazprom stated that no turbines used on the Nord Stream 1 were undergoing maintenance. Yet a Canadian minister was quoted as claiming five turbines were there. Considering the pipeline is still running at 20%, any further slowdown of operation will likely keep gas prices soaring as security and storage fears continue to grow.

GBP/EUR Exchange Rate Forecast: Cost-of-Living Crisis to Sink the Pound?

Looking forward, the Pound Euro exchange rate could be susceptible to further fluctuations as a lack of major data could leave GBP/EUR open to market sentiment.

Continued pessimism in the UK economy could see the Pound slide unless the government decide to take radical action in providing fiscal support to tackle the cost-of-living crisis.

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