Pound Euro Exchange Rate News: GBP/USD Strengthens as Liz Truss Plans Crisis Package

September 6, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/USD Strengthens as Liz Truss Plans Crisis Package

GBP/EUR Exchange Rate Gains ahead of Energy Price Intervention

The Pound to Euro (GBP/EUR) exchange rate strengthened on Tuesday as investors waited for Liz Truss’ first speech as Prime Minister.

At time of writing the GBP/EUR exchange rate traded at around €1.1659, up roughly 0.3% from Tuesday’s opening level.

Pound (GBP) Strengthens Ahead of Truss’s First Address

The Pound beat many of its peers on Tuesday ahead of Liz Truss’ first speech as Prime Minister, in which the energy price crisis is expected to feature prominently.

According to reports, Truss was in the process of finalising a £40bn aid package for UK businesses. Options within this plan include guaranteed energy unit prices or a percentage reduction. Government reimbursement for business losses was also a possibility. This relieved many business owners, who are unable to have their energy capped like UK households.

Investors were further cheered by the expectation that Truss would also freeze the energy cap, at the cost of £130bn, ahead of the rise in October.

Investors and economists hope that this freeze will ease financial burden on many UK households. This could help to underpin consumer spending and limit the depths of the UK’s impending recession.

It’s hoped this will also provide the Bank of England (BoE) with more headroom to continue raising interest rates.

Euro (EUR) Sinks as Gas Supply is Choked

Meanwhile, the Euro is taking a hit this morning as it struggles under the weight of the energy crisis.

Gas prices spiked again on Monday Gazprom indefinitely halted gas supplies via the Nord Stream 1 pipeline. The company had been undertaking routine maintenance on the key pipeline to Germany and have refused to turn the supply back on.

Nord Stream 1 is the single biggest pipeline for gas from Russia to Europe. This comes after the G7 countries agreed to put a cap on Russian oil to try and curb Valdimir Putin’s regime.

Kremlin spokesman Dmitry Peskov said on Monday:

‘Pumping problems arose because of sanctions imposed against our country and against a number of companies by Western states, including Germany and the UK.

‘There are no other reasons that would lead to problems with pumping.’

Gas prices have been volatile for weeks but seem to be dropping today. On Tuesday natural gas prices were $8.58 per therm.

If the issues with Europe’s gas supply are not resolved economists believe that Europe will be driven into recession.

A point that was underpinned by German data released on Tuesday, which showed factory orders had declined by 1.1% in July versus a forecast0.2% contraction.

ING economist Carsten Brzeski said about the situation:

‘Shrinking order books add to current recession fears. With surging energy prices and fading new orders, the outlook for the German industry is anything but rosy.’

GBP/EUR Exchange Rate Forecast: Euro to Driven by Data

Looking ahead, movement in the Pound Euro (GBP/EUR) exchange rate is likely to be dominated by the European Central Bank’s (ECB) latest interest rate decision.

Whilst consensus forecasts predict a 50bps rate hike, there is significant speculation the ECB may opt for a 75bp rise. The larger hike could propel the Euro sharply higher.

In the meantime, the release of the latest GDP figures could provide movement to the Euro on Wednesday if there are any revisions.

In lieu of any significant UK data the Pound will continue to be driven by political headlines as investors await more clarity on Truss’ plans to tackle the energy crisis and inflation.

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TAGS: Euro Pound Forecasts