Pound Euro Exchange Rate Slumps as UK Energy Costs Soar

August 26, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Slumps as UK Energy Costs Soar

Pound Euro (GBP/EUR) Exchange Rate Drops amid Soaring Energy Costs

The Pound Euro (GBP/EUR) exchange rate slipped on Friday. The prospect of soaring energy bills for UK households and businesses likely weighed on the currency pair. Additionally, a weaker US Dollar (USD) saw increased trade on the Euro (EUR) which may have contributed to losses for GBP/EUR.

At time of writing the GBP/EUR exchange rate was at around €1.1823, which was down around 0.3% from the morning’s opening figures.

Pound (GBP) Edges Lower as Energy Price Cap Set to Rise by 80%

The Pound (GBP) saw muted trading on Friday and made little headway against its rivals. Soaring energy costs likely weighed on Sterling, keeping the currency on the defensive.

UK energy regulator announced on Friday that its energy price cap would climb by 80% in October. The increase is set to bring the average UK household gas and electricity to around £3549.

The rise is expected to have a damaging effect on household budgets this winter, further adding to the UK’s economic woes.


Money saving expert Martin Lewis said of the rise:

‘If we do not get further government intervention, on top of what was announced in May, then lives will be lost this winter. Too many people to think about, because of these unaffordable, terrible, rises in energy bills.’

The soaring energy costs are also expected to push inflation in the UK even higher, increasing feasr that the country call fall into a recession.

Bets on further interest rate hikes from the Bank of England (BoE) could have limited losses for the currency, however. Markets have increasingly priced in the prospect that interest rates could climb as high as 4% in 2023.

Euro (EUR) Climbs Despite Plummeting Consumer Confidence

The Euro (EUR) climbed on Friday despite persistent concerns regarding the Eurozone’s energy crisis.

A weakened US Dollar (USD) may have benefitted the single currency. Investors remained cautious surrounding USD ahead of Federal Reserve Chair Jerome Powell’s key speech.


The Euro could have also seen support amid renewed expectations for further interest rate hikes from the European Central Bank (ECB). Markets have increasingly priced in further hikes following the release of hawkish meeting minutes on Thursday from the ECB’s last meeting.

Significant gains for the Euro against may have been capped by plummeting consumer confidence in Germany, however. The consumer sentiment index fell to a record low of -36.5 for September as German consumers braced themselves for a sharp increase to energy bills.

GBP/EUR Exchange Rate Forecast: Will Rise to Eurozone Inflation Push Euro Higher?

Looking to the week ahead for the Pound, the final reading of August’s PMIs could pull the currency lower on Thursday. If figures print as forecast, it will see the UK’s private sector output fall further. The readings could further dent confidence in Sterling’s long-term prospects.

The impact of soaring energy costs may also continue to weigh on GBP in the coming week. With no significant support announced for households, the inflationary impact of the costs could add to the UK’s gloomy outlook.

For the Euro (EUR), a slip to Eurozone economic sentiment on Tuesday could pull the single currency lower if figures print as forecast.

On the other hand, a predicted uptick in German inflation could help to underpin EUR. If the figures print as forecast it could also boost the Euro off of increased bets on ECB rate hikes. A forecast rise to Eurozone inflation on Wednesday could have a similar effect.

On Thursday, the Eurozone’s unemployment rate is forecast to remain unchanged in July at record-lows. Signs of a tight labour market could bolster EUR amid expectation of further action from the ECB.

Thursday’s predicted fall in German retail sales could curb any gains for the single currency, however.

The energy crisis gripping the trading bloc could also continue to keep pressure on the Euro in the coming week.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts