Pound Euro Exchange Rate Ticks Up on EUR Headwinds

September 21, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Ticks Up on EUR Headwinds

GBP/EUR Exchange Rate Firms as Euro Dips on USD Strength

The Pound Euro (GBP/EUR) exchange rate is trending up gently this morning as risk-off headwinds subdue both currencies amid geopolitical tensions and central bank trepidation. The Federal Reserve bank are expected to hike interest rates today by either 75 or 100bps, the prospect of which inspires bearish sentiment on fears of central bank policy divergence.

At the time of writing, GBP/EUR is trading at €1.1424, slightly higher than today’s opening levels.

Euro (EUR) Pressured by US Dollar Strength

The Euro (EUR) is sliding against its peers today as support for the single currency is dimming on renewed US Dollar (USD) strength. As USD investors anticipate a mammoth interest rate hike from the Federal Reserve, EUR tumbles on account of the strong negative correlation between the currencies.

USD-inspired headwinds add to existing pressures weighing upon market sentiment more generally, such as geopolitical tensions and energy price woes. The Euro is ordinarily fairly resilient amid risk-off trading, but a lack of significant data exposes the single currency to losses.


Over in Russia, President Vladimir Putin has sparked concern of further conflict with an announcement that the country is ‘partially mobilizing’ its military forces in response to perceived ‘Western threats on Russian territory’.

In a televised address, Putin said: ‘If the territorial integrity of our country is threatened, we will use all available means to protect our people – this is not a bluff… That’s why I asked the ministry of defence to agree to partial mobilisation.’

While the news is worrying to European markets, experts suggest that it is still more dispiriting for Russian citizens, as it represents a broken promise Putin made ‘not to mobilise parts of the population’. Such comments help to limit EUR headwinds.

Further weighing upon the Euro, however, are misgivings over the region’s energy shortage. In the latest move, Germany has nationalized gas importer Uniper, buying the 78% of the company previously owned by the Finnish government.

The Government in Berlin has also pledged to support the firm with an €8bn investment, as Uniper ran up billions of euros of losses following Russia’s cessation of energy exports. Previously, around 50% of the company’s profits margin had come from Russian-generated gas.

Pound (GBP) Gains Capped by Energy Support Package Concerns

The Pound (GBP) is trading up against the Euro today but succumbs to pressure against several other peers as analysts fret over the technicalities of the energy support package proposed by Prime Minister Liz Truss.


While new data revealed this morning that electricity and gas prices are going to be capped for UK businesses, charities and public sector bodies, many investors are instead focused upon the prospect of support measures ending in 6 months’ time.

The early years education sector warns of the perils of a ‘cliff edge’ facing childcare businesses – a sentiment echoed by other private businesses and hospitality firms. The Institute of Chartered Accountants in England and Wales (ICAEW) commented:

‘We hope the government continues to respond flexibly to provide support where needed, otherwise firms will face a cliff edge in six months’ time which can only mean price increases and real threats of company failures.’

Others suggested a more lasting solution would be to use less energy. Jess Ralston from the Energy and Climate Intelligence Unit said:

‘With taxpayer support only set to last for six months under the current plan, the question is what happens after that? Experts have said time and time again that the government’s approach to the gas crisis is missing a key component – conserving energy.’

Also weakening Sterling tailwinds today was a greater-than-expected increase in government borrowing in August. Debt interest payable rose to £8.2bn last month: the highest figure for August since the start of records in 1997.

Critics of the Conservative government have already expressed concern that additional government borrowing to fund support measures will disproportionately affect poorer households when debt is reclaimed as tax.

GBP/EUR Exchange Rate Forecast: CBI Data, Central Bank Dynamics to Drive Movement?

Already capping GBP losses today is data from the Confederation of British Industries (CBI), showing that industrial trends orders improved in September to -2 from -7 in August. As investors digest the positive release, Sterling headwinds may subside somewhat.

Elsewhere, currency movements are likely to be driven by central bank dynamics. If the Fed hikes interest rates by 100bps this evening, USD is likely to skyrocket – propelling the Euro lower in its exchange rates. Tomorrow, a significant interest rate hike from the Bank of England (BoE) could buoy the Pound against its peers.

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TAGS: Pound Euro Forecasts