Pound Euro Exchange Rate News: GBP/EUR Firmed amid Looming Energy Crisis

Modified: Monday, 5 September 2022 12:35 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Firmed amid Looming Energy Crisis

The Euro (EUR) Weakened on Mounting Energy Crisis

The Euro (EUR) struggled to find much demand on Monday as Russian state-owned Gazprom cut off gas supplies through the Nord Stream 1 pipeline indefinitely. Citing maintenance reasons once again, the Kremlin released a statement, claiming:

‘Gas transportation to the Nord Stream gas pipeline has been completely halted until the complaints on the operation of the equipment have been eliminated.

‘Gas transportation problems arose because of sanctions introduced by western countries.’

The key pipeline, the single biggest supply line of gas from Russia to Europe, is crucial if the Eurozone hopes to avoid an energy crisis. Gazprom completely halted supplies last Wednesday and said supplies would resume on Saturday but again, due to maintenance issues, supplies have been cut off.

Coming after G7 members agreed on imposing a price cap on Russian imports, which would see revenues cut for Russia, and in turn hampering Putin’s war efforts. Nadhim Zahawi, Chancellor of the Exchequer, said:

‘We will curtail Putin’s capacity to fund his war from oil exports by banning services, such as insurance and the provision of finance, to vessels carrying Russian oil above an agreed price cap.

‘We are united against this barbaric aggression and will do all we can to support Ukraine as they fight for sovereignty, democracy and freedom.’

Meanwhile, further weighing on the Euro is the printing of poor retail sales. Despite a modest improvement over the previous month’s sales, both MoM and YoY figures fell below forecasts. Combined with the worsening energy crisis, the Euro looks to remain under pressure unless alternatives can be sourced to replace Europe’s over-reliance on Russia’s energy.

Pound (GBP) Buoyed on End to Political Uncertainty

The Pound (GBP) started to find modest support as investors await the announcement of the new prime minister.

With the long, drawn-out Conservative leadership race finally ending, the announcement of the new prime minister could bring an end to the political volatility that was weighed heavily on the Pound. Frontrunner Liz Truss is expected to replace Boris Johnson and despite ruling out windfall taxes, has promised to immediately provide fiscal aid if she takes office. What that fiscal aid will look like is still unknown, with many hoping for an energy bill freeze.

In a BBC interview with Laura Kuenssberg, Truss was reserved in her plans, but said:

‘What I want to reassure people is I will act, if elected as prime minister, within one week. Now, what I can’t do, Laura, on this show, is tell you exactly what that announcement would be… It would be completely wrong.’

Keeping a firm lid on any significant gains, warnings of a looming energy crisis to hit Europe are growing. As previously mentioned with Gazprom halting gas supplies to Europe, fears of an energy crisis further compound existing cost-of-living fears in the UK.

Meanwhile, the service sector PMI printed lower than expected, and dropped to 50.9 in August. Despite still showing growth, the reading was the softest expansion since the height of the pandemic. The worsening cost-of-living crisis compounded by inflationary pressures lent to a PMI reading barely above the contraction/expansion level.

GBP/EUR Exchange Rate Forecast: New Prime Minister to Inspire the Pound?

All eyes will be on the announcement of Boris Johnson’s replacement as hopes of substantial financial aid will be first on agenda. With both Truss and her rival Rishi Sunak promising immediate and substantial fiscal assistance, Sterling could see a much-needed boost if the incoming leader hits the ground running.

Elsewhere, the escalating energy security crisis is likely to keep the Euro under pressure. Any further developments with the Nord Stream 1 pipeline could influence the single currency.

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TAGS: Pound Euro Forecasts