Pound Euro Exchange Rate News: GBP/EUR Softened as UK Political Uncertainty Returns to Spook Markets

October 18, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Softened as UK Political Uncertainty Returns to Spook Markets

Pound (GBP) Undermined by Quashed BoE Rumours

The Pound (GBP) soared to seven-week highs on Monday in the wake of Chancellor Jeremy Hunt’s dismantling of Liz Truss’ mini-budget.

Since replacing the sacked Kwasi Kwarteng last Friday, Hunt systematically reversed almost of all the sweeping tax cuts outlined in the disastrous mini-budget. Despite calming the frantic market, it also pulled into question the credibility of both Truss and her government.

Rumours began circulating of the Bank of England (BoE) delaying the start of quantitative tightening (QT), the sale of government bonds. However, a Financial Times report was soon refuted by the central bank. The turbulent bond markets, which had finally stabilised following the mini-budget U-turn, have begun to wobble once more amid financial instability in the UK. The BoE released a statement:

‘This morning’s FT report that the BoE has decided to delay MPC gilt sales is inaccurate.’

Further weighing on the Pound is the return of political uncertainty. In the run-up to Truss beating out Rishi Sunak, the markets remained turbulent on the turbulence. With confidence hitting rock-bottom in Truss and her government, a fresh poll shows Labour taking a significant lead over the Conservative Party. Conducted by Redfield & Wilton, the poll recorded the largest lead for any political party since October 1997.

Meanwhile, the ‘summer of discontent’ is looking to extend into not just autumn but winter as well. Pubs in the UK could be facing a beer shortage before the World Cup as drivers look set to strike over pay and job cuts. 40% of beer deliveries are through GXO Logistics, and could have a significant impact on bars, pubs, and restaurants throughout the UK. Workers have rejected a 5% pay offer in a deal that also saw a reduction in sick pay. Sharon Graham, Unite General Secretary, said:

‘GXO can easily afford to pay and Unite is determined to see that they do.’

The Euro (EUR) Buoyed by Better-than-Expected German Data

The Euro (EUR) enjoyed modest tailwinds on Tuesday as Germany’s ZEW economic sentiment index revealed an unexpected improvement in morale. Against expectations of an all-time low, the index improved from -61.9 to 59.2. Despite the uptick in morale, German investors remain pessimistic about the future.

Meanwhile, the Ukraine conflict continues to sap demand for the Euro. Russia has recently ramped up their attacks, with deadly kamikaze drone attacks on Kiev throughout the week. The continued targeting of civilians and energy infrastructures is only likely to exacerbate efforts to stop Putin’s invasion. Ukrainian President Zelenskiy has said that Russia have been targeting power stations, adding:

‘Since 10 October, 30% of Ukraine’s power stations have been destroyed, causing massive blackouts across the country.’

The longer the conflict drags on, the more the Euro will be affected.

GBP/EUR Exchange Rate Forecast: Inflation Data to Buoy the Pound?

Looking ahead, the Pound Euro exchange rate could fluctuate with the release of CPI data for September. An expected climb in inflation for the UK could see future rate hike bets bolstered. Meanwhile, inflation in the Eurozone is expected to follow suit and also climb beyond 10%.


Elsewhere, several key speeches from European Central Bank (ECB) policymakers are planned for Tuesday afternoon. A lack of major data for the pairing could see the Euro climb if speeches prove hawkish.

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