Pound Euro Exchange Rate News: GBP/EUR Strengthens as UK Government U-Turns on Tax Cut

October 3, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Strengthens as UK Government U-Turns on Tax Cut

GBP/EUR Exchange Rate Gains Ground on Government U-Turn

The Pound to Euro (GBP/EUR) exchange rate firmed on Monday as Chancellor Kwasi Kwarteng dropped the 45p tax cut from the highly controversial fiscal plan.

At time of writing the GBP/EUR exchange rate traded at around €1.1426, which is roughly up 0.3% from Monday’s opening rate.

Pound (GBP) Continues Recovery as Kwarteng Scraps 45p Tax Cut

The Pound (GBP) was strengthening against its peers on Monday as comments from Chancellor Kwasi Kwarteng concerning planned tax cuts cheered investors.

In a series of interviews given on Monday morning Kwarteng back tracked on the 45p tax cut. This comes after investors had been expecting a U-turn on the fiscal plan for more than a week.

During an interview with BBC Today whilst discussing the 45p tax cut Kwarteng said:

‘What I admit was that [the 45p tax cut] was a massive distraction on what was a strong package.’


However, there are many who believe that the U-turn comes too late as the tax-cut has already inflated mortgages and forced a Bank of England (BoE) intervention to save pensions, causing strain for consumers.

Although, some still believed in the fiscal plan and encouraged the U-turn. Tony Danker, director general of Confederation of British Industry (CBI) said:

‘Here was a package with some really strong economic reforms that businesses have been waiting for, for years in fact and clearly, politically, the 45p had become a distraction. And, probably more importantly, businesses up and down the country want the markets to stabilise, that is an absolute pre-condition to investment and growth.’

Regardless of the domestic headlines, GBP investors reacted positively to the news and the Pound was boosted as a result.

Euro (EUR) Weighed Down by Poor PMI Data

The Euro (EUR) was on the back foot on Monday as the final manufacturing PMIs for September printed below expectations.

September’s preliminary figures has suggested the manufacturing PMI slowed from 49.6 to 48.5, the today’s finalised release reported the index ticked down to 48.4.


This was received poorly by EUR investors as it added to concerns over the Eurozone’s looming recession. Williamson, Chief Business Economist at S&P Global Market Intelligence said:

‘The combination of rising costs and slumping demand has also pushed firms expectations for the year ahead sharply lower again in September, leading in turn to reduced input buying and lower jobs growth as firms prepare for a tough winter.’

This rising cost of living has been caused by climbing energy prices. Russia supplies most of the EU’s gas, which they’ve been withholding as tensions between Russia and Ukraine continue to escalate.

GBP/EUR Exchange Rate Forecast: EUR to be Shored up Lagarde Speech?

Looking ahead, the main impetus for movement for the Pound Euro exchange rate on Tuesday may be a speech from European Central Bank (ECB) President Christine Lagarde.

If Lagarde strikes a hawkish tone, in keeping with recent rhetoric, then the Euro could rise in expectation of a 75bps hike. If Lagarde signals a more restive move, the single currency could see headwinds.

Concerning the Pound, in lieu of any data on Tuesday investors will likely continue to trade on domestic headlines. The fiscal budget will be in high focus as GBP investors hope for further retractions within the mini budget.

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TAGS: Pound Euro Forecasts