Pound Euro Exchange Rate News: GBP/EUR Wavers as Investors Brace for Spring Budget

March 15, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavers as Investors Brace for Spring Budget

Pound (GBP) Supported by Extended Energy Support

The Pound (GBP) firmed modestly on Wednesday morning ahead of the Spring Budget. An early U-turn from the Treasury boosted spirits as it was announced the Energy Price Guarantee (EPG) will be extended for another three months.

Businesses and households will be relieved of the extra support as fears grew of mounting energy prices when the support scheme was due to end in April. Ahead of the Spring Budget, Chancellor Jeremy Hunt said of the support extension:

‘High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

‘With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.’

Due to outline the government’s spending and tax plans for the coming year, investors are eagerly awaiting economy-boosting measures from Hunt. And with government borrowing having improved considerably since the last meeting, Hunt will have more breathing room to provide further support for both businesses and households.

Meanwhile, GBP investors will also be paying close attention to the updated Office for Budget Responsibility (OBR) economic growth forecasts. Inflation expectations are expected to be reduced from 7% to 4%, and an overall improved outlook. Despite an expected uptick in their economic growth forecasts for 2023, lower GDP projections further out could weigh on Sterling.

Euro (EUR) Subdued ahead of Interest Rate Decision

Meanwhile, the Euro (EUR) struggled for much demand on Wednesday as investors were bracing for the latest interest rate decision from the European Central Bank (ECB) on Thursday.

Lending some modest support to the Euro is a modest improvement in industrial production in the Eurozone. Against expectations of a 0.4% climb, and versus a 1.3% fall in December, factory activity picked up by 0.7%. Bert Colijn, analyst at ING, commented on the data:

‘Production rose 0.7% between December 2022 and January 2023 but maintains a broad trend of stagnation. Strong German and Irish production figures mask weakness elsewhere in Europe. The outlook remains very uncertain with weak orders but improving supply chain problems and lower energy prices.’

Elsewhere, Ukraine headlines could be weighing on the Euro as a Russian jet fighter collided with a US drone. The Kremlin released a statement in the wake of the collision, which saw a US Reaper Drone downed over the Black Sea, and claimed that relations between the two nations were in a ‘lamentable state’. Fears of escalating conflict could be sapping demand for the Euro.

GBP/EUR Exchange Rate Forecast: Spring Budget to Bolster the Pound?

Looking ahead, the Pound Euro exchange rate could see further movement with the unveiling of the UK government’s tax and spending plans. GBP investors, however, could be more focused on the OBR’s revised economic outlook. A more favourable forecast could inspire much-needed confidence in GBP investors.

Elsewhere, the Euro will be occupied with the interest rate decision from the ECB on Thursday. A maintained hawkish stance from the central bank have kept the Euro relatively buoyed, and with expectations of another 50bps rate hike, the Euro could climb.

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TAGS: Pound Euro Forecasts