Pound Euro Exchange Rate Fluctuates as Energy Crisis Continues
The Pound Euro (GBP/EUR) exchange rate trades in a narrow range this morning as both the Pound and Euro face pressure from ongoing gas price concerns.
At the time of writing, GBP/EUR is trading at €1.1757, virtually unchanged from today’s opening levels.
Pound (GBP) Trends Down Despite Russian Assistance
The Pound (GBP) is trading down against the majority of its peers as high gas prices continue to put pressure upon UK manufacturers. An offer of assistance from Russia has reduced costs slightly, but concerns over the country’s motive cap significant tailwinds.
UK gas prices surged to record highs yesterday, peaking at 350p per therm for next day delivery, which prompted warnings from the Energy Intensive Users Group trade body that UK factories may have to shut down over winter.
Following comments from Russia, however, prices retreated by 9%, closing at 271p per therm. Russia’s Vladimir Putin hedged: ‘let’s think through the potential increase of supply on the market, only we need to do it carefully.’
The consensus is that Russia seems to be using the crisis as leverage for support its Nord Stream pipeline project. Jeffrey Halley, analyst at OANDA, remarks:
‘The Russian Vice-President mentioned certifying Nord Stream 2 once again as a potential solution to Europe’s gaseous woes… Mr Putin’s comments were high on rhetoric but very low on detail, [but] the message is fairly clear: you can have all the gas you want in the future, you just need to sign here.’
The Nord Stream project is controversial as it circumvents Ukraine, which relies on existing pipelines for income, and still needs to be certified by Germany’s regulator.
Until a satisfactory outcome is agreed between the parties concerned, gas prices are unlikely to stabilise altogether, exerting further pressure upon the Pound.
Euro (EUR) Shares Gas Woes, German Data Exacerbates Downside
The Euro (EUR) is also affected by gas prices pressures, although Russia’s offer of assistance reversed yesterday’s price spike as with the UK.
The benchmark Dutch wholesale gas contract for November delivery has dropped, although the market continues to show signs of volatility, with huge intraday swings.
Another significant headwind for Euro performance is this morning’s German industrial production release. Production fell by 4% for the month of August, worse than forecasts of a 0.4% drop.
The contraction is broadly attributed to ongoing supply chain disruptions, as well as shortages of key parts such as semiconductors. Automakers were particularly hit, as production of cars and car parts fell by 17.5% on the month, while manufacture of machinery and equipment was down 6.3%.
According to Capital Economics, Europe’s largest economy could be facing a ‘bottleneck recession’:
‘With conditions having worsened since August, Germany’s manufacturing problems threaten to keep the economy as a whole well below its pre-pandemic level until next year.’
Downside is limited, however, by an overall risk-on mood and weakness in the US Dollar (USD).
Pound Euro Exchange Rate Forecast: EUR to Find Direction on ECB Speeches?
Looking ahead, Euro trading may be affected by speeches from European Central Bank (ECB) officials this afternoon. ECB board members Isabel Schnabel and Philip Lane will speak following the central bank’s monetary policy meeting accounts – if a hawkish tone is struck EUR may see gains.
Into tomorrow, GBP/EUR could find movement on Germany’s balance of trade, which is forecast to print lower than last month’s figure, although still with a surplus. Meanwhile, energy dynamics and other external factors may also affect trading.