Pound Euro Exchange Rate News: GBP/EUR Nosedives as Investors Digest Mini Budget

September 23, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Nosedives as Investors Digest Mini Budget

GBP/EUR Exchange Rate Collapses as Mini Budget Troubles Investors

The Pound to Euro (GBP/EUR) exchange rate struck an 18-month low on Friday as Chancellor Kwasi Kwarteng’s mini-budget spooked GBP investors.

At time of writing the GBP/EUR exchange rate traded at around €1.1319, which had fallen from Friday’s opening rate by roughly 1.11%.

Pound (GBP) Plummets as Kwarteng’s Plan is Questioned

The Pound (GBP) collapsed against its peers on Friday as chancellor Kwasi Kwarteng’s mini-budget shocked investors as he outlined plans for unfunded tax cuts worth around £45bn.

Many investors and economists were left with fears about how much the government will need to borrow in order to cover these massive tax cuts.

According to Fiona Cincotta, Senior Financial Markets Analyst at City Index:

'Far from soothing concerns over the outlook for the UK economy, Liz Truss and Kwasi Kwarteng’s economic plan for the UK has sent the pound plunging. The announcement of the largest tax cuts since 1972 to boost growth and stave off a recession that has already started.


‘The selloff in UK assets reflects the sheer panic as the new government’s stimulus package will not only grow an already sizeable debt burden, potentially to unmanageable levels but will also add to inflationary pressures.’

Far from boosting investor confidence, the budget has undermined confidence in the UK’s fiscal approach, with most analysts expecting the tax cuts to only provide marginal growth, while burdening the country with unsustainable levels of debt.

Euro (EUR) Falls as PMI’s Miss Forecast

Whilst the Euro (EUR) was up against the Pound, it fell against most of its peers on Friday following poor PMI data. The Eurozone’s PMIs for service and manufacturing printed worse than expected, coming in at 48.9 and 48.5 respectively.

the sharper-than-expected contraction in Eurozone private sector growth this month stoked fears the Eurozone is heading toward a recession.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said that:

‘A Eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs.


‘The early PMI readings indicate an economic contraction of 0.1% in the third quarter, with the rate of decline having accelerated through the three months to September to signal the worst economic performance since 2013, excluding pandemic lockdown months.’

Adding pressure to the Euro was the Russia-Ukraine referendums which began today. These referendums will decide if Russian-occupied Ukrainian territories will be recognised as parts of Russia.

The suspected outcome of the ‘illegal’ referendums dragged on the Euro as investors and economists feared the impact of Russia claiming Ukrainian territory as their own.

If the referendums succeed, then any attempt from Ukraine to reclaim land will escalate the war, which is likely to place even more pressure on the Eurozone economy and the single currency.

GBP/EUR Exchange Rate Forecast: EUR to be Lifted by ECB Speeches?

Looking ahead to the start of next week, movement in the Pound Euro exchange rate may be initially driven by speeches from European Central Bank (ECB) policymakers.

In the lieu of any significant data, the Euro could regain some ground early Monday if ECB policy makers give hawkish speeches. If, however, the speeches sound more restrictive, then this could put further pressure on the Euro.

Investors will also be paying close attention to developments within Ukraine, as the referendum results come to light. If Russia recognises the occupied territories as their own, then the response will likely cause military action form Ukraine.

Meanwhile, the fallout from Kwarteng’s mini budget could leave the Pound to lick its wounds on Monday.

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TAGS: Pound Euro Forecasts