Pound Euro Exchange Rate News: GBP/EUR Sluggish in Response to Truss’s Meeting with OBR

September 30, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Sluggish in Response to Truss’s Meeting with OBR

GBP/EUR Exchange Rate Muted as OBR Meeting Fails to Ease Investor Concerns

The Pound to Euro (GBP/EUR) exchange rate wavered on Friday, as a combination of Pound volatility and Truss’s meeting with OBR weighed on the pairing.

At time of writing the GBP/EUR exchange rate traded at around €1.1358, which is roughly the same as Friday’s opening levels.

Pound (GBP) Mixed in Response to Truss’s Meeting with OBR

The Pound (GBP) remained volatile against most of its peers on Friday as Lizz Truss’s meeting with the Office of Budget Responsibility (OBR) did little to alleviate concerns over UK fiscal policy.

Prime Minister Lizz Truss and Chancellor Kwasi Kwarteng met with Richard Hughes, the chief economist of OBR to discuss the governments poorly received fiscal plan, which at the time of release didn’t have a forecast.

A spokesperson for OBR said:

‘We discussed the economic and fiscal outlook and the forecast we are preparing for the chancellor’s medium-term fiscal plan.’

In an unexpected move the Treasury released a read out of the meeting, in which the process for the upcoming economic and fiscal forecast were discussed. Economists believe that this was an attempt to calm markets.

However, the impact of the read out was offset by Kwarteng’s refusal to release the OBR’s fiscal forecast before November. As such, the Pound dropped again as investors worried about the viability of the mini budget.

Euro (EUR) Slips amid Concerns over an Escalation of Ukraine Conflict

The Euro (EUR) was subdued on Friday amid fears over a possible escalation of the war in Ukraine.

Valdimir Putin held a ceremony to formally annex the Russian-occupied Ukraine territories which held ‘sham’ referendums over the weekend. Putin claims that Donetsk, Luhansk, Kherson and Zaporizhzhia are all now all parts of Russia.

Ukrainian President Volodymyr Zelensky has said:

‘They (the votes) are worthless and do not change reality. The territorial integrity of Ukraine will be restored. And our reaction to recognition of the results by Russia will be very harsh’.

The president met with military chiefs on Friday to discuss a ‘plan for liberation’. They also discussed weapon supply for the military and possible further plans in response to the invasion.

EUR investors fear the illegal annexation of these territories could mark a significant escalation of the conflict, which has already placed massive pressure on the Eurozone economy this year.

The Euro was also under pressure on Friday after the US released their core PCE price index for August. The figures printed higher than expected s, rising from 4.7% to 4.9% . This bolstered USD and weighed on the Euro due to the exchange pairs negative correlation.

GBP/EUR Exchange Rate Forecast: PMIs to Drive Movement on Monday?

Looking ahead to next week’s data calendar, the latest manufacturing PMIs could cause fresh impetus for the Pound Euro Exchange Rate.

The UK manufacturing PMI for September is forecast to print at 48.5 up from 47.3 in August potentially offering some limited support to Sterling.

The Eurozone’s manufacturing sector is also expected to contract again, with September’s index expected to fall from 49.6 to 48.3. It’s possible that this print could cause headwinds for Euro, although the contraction is already priced in and might cap gains rather than cause a dip.

In the meantime, the Euro and Pound will likely remain volatile as developments within Ukraine and the fiscal budget affect each currency respectively.

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TAGS: Pound Euro Forecasts