The EUR/GBP pair is a popular pair and belongs to the minor forex pairs group. It is a cross currency pair as it involves two currencies which are valued against a third currency, the US dollar. The EUR/GBP shows how many pounds are needed to buy one euro.

Cross currency pair

When a cross-currency pair is exchanged, two transactions take place. The first one involves trading one currency for its equivalent in US dollars, and the second involves the exchange of US dollars to another currency.

EUR/GBP: limited volatility

The euro-pound cross tends to have very limited volatility on a daily basis, and usually fluctuates when very important events happen in either of the two economies, such as Bank of England or European Central Bank announcements on monetary policy, or political tensions such as the recent conflict in Ukraine.

Key institutions

  • The European Central Bank (ECB)

The European Central Bank (ECB) is the central bank that determines the monetary policy for the Eurozone and ensures price stability, so that the euro’s purchasing power is not affected by inflation. The ECB’s main goal is to keep year-on-year consumer prices from rising too much and has an inflation target of around 2% in the medium term. The central bank is also responsible for the money supply. The European Central Bank operates through the Executive Board, the Governing Council and the General Council. Christine Lagarde is the ECB President since November 2019. She had served as Chairman and Managing Director of the International Monetary Fund between 2011-2019. Her comments as ECB President are very important as they can influence the market and the euro in the near term. If the bank has a hawkish outlook or Lagarde’s comments strike a determined tone to act then this is seen as positive/bullish for the EUR, while a dovish tone is seen as negative/bearish.

  • The Bank of England

The Bank of England is the central bank of the United Kingdom. The BoE is focused on maintaining monetary and financial stability in Britain, but also producing secure banknotes, operating an asset purchase facility and keeping inflation within the target. The bank is accountable to Parliament and the public. Andrew Bailey has been Governor of the Bank of England since March 2020. Prior to becoming the Governor, he worked at the Bank as Executive Director for Banking Services and Chief Cashier, as well as Head of the Bank's Special Resolution Unit. He also had the position of the  Governor's Private Secretary, and acted as the Head of the International Economic Analysis Division in Monetary Analysis.

When does the euro tend to rise?

According to analysts, the euro tends to strengthen when the ECB is optimistic, ECB members sound more hawkish and rates are expected to increase. If the ECB is more optimistic and ready to act than other banks, especially the Fed, then this is also supportive of the euro. When the economy in Europe shows positive signs that is growing and when Lagarde refers to less risks or sounds positive, the euro also rises.

When does the euro tend to weaken?

Any talk about rates falling, drives the euro lower. Similarly, any gloomy news or disappointing tone from the ECB, signs of recession in the Eurozone, or political uncertainty such as Macron losing a majority are also influential and tend to weaken the single currency. The ongoing war between Russia and Ukraine is also another negative for the euro. The euro tends to weaken as inflation rises and growth slows down.

When does the pound tend to strengthen?

When the economic outlook for the UK appears optimistic and rosy then the pound strengthens. Analysts have noted that the emergence of a more stable Conservative PM could also provide support to Sterling. As with other central banks, an optimistic and hawkish Bank of England tends to drive the pound higher. Additionally, the BoE’s intention to push rates higher is usually supportive of the pound.

When does the pound tend to weaken?

Rising energy and food prices and the BoE’s reluctance to act and tackle inflation usually push the pound lower. Additionally, projections for a possible recession and a weak, gloomy outlook also tend to weaken the pound. A slowdown in growth and a slower rate hike cycle can also push the pound lower. The rising cost of living crisis and further risks to the economy are negative for the pound.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound rose against the US dollar in early trade, its highest in a week. It was also higher against the euro after the European Central Bank’s policy update did not offer any signs that it will proceed to raising interest rates any time soon. The ECB’s guidance was similar to the last one in May and disappointed markets who were expecting that policy makers would be more decisive about a 2022 rate hike to fight surging inflation.

While inflation is a global concern, the ECB avoided signalling an end to its bond purchase programme and stated they would continue to buy assets even after they start raising rates. The euro weakened following the news.

Inflation to remain high

In its statement, the ECB said that inflation has increased considerably and will remain high in the coming months because of the high energy prices. The bank did not show it was extremely concerned about wider price pressures in the economy. Earlier in March, the ECB said that it would end its asset purchase programme one quarter earlier than before which helped to push the euro higher. This is why market expectations were high today, and market participants were disappointed as the statement was not as aggressive as expected and no new policy changes were announced.

Many investors were looking for a more “hawkish” tone as inflation has risen especially following the war in Ukraine. The ECB did not touch upon the issue of interest rate rises, despite that the market was expecting 60 basis points of hikes for 2022.

ECB Press Conference

In a press conference, ECB President Christine Lagarde said that the central bank was focused on ending the asset purchase programme before raising rates, with the first hike coming some time after the ending of the asset purchase programme. Lagarde said: "We will maintain optionality, gradualism and flexibility in the conduct of our monetary policy.” Analysts expect the earliest rate to come in December, with the 60-basis point being an over optimistic forecast.  

At the conference, there was no mention of the new emergency tools that the ECB was exploring if bond yields of peripheral economies rose. The ECB was creating a so-called backstop to be used against debt-market pressures outside the control of individual governments.

The ECB’s cautious tone today drove the euro lower as the market was not expecting a softer attitude amidst surging inflation. European Central Bank chief Christine Lagarde’s comments were seen as a sign that the bank was not in a hurry to raise interest rates and offered no hard schedule and little specifics beyond the coming months. As she said, “We'll deal with interest rates when we get there."

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound was lower against the euro, as the single currency strengthened following Emmanuel Macron’s lead in the first round of the French presidential elections. In two weeks, markets will be focused on the second round, where Macron will have a close run-off with far-right leader Marine Le Pen. Both NATO and the European Union will be anxious to see what will happen in two weeks especially after Le Pen has qualified for the second round of the French presidential on the 24th of April. Investors will also be cautious and concerned about the outcome as a far-right president will have a negative impact on markets and the euro in particular. Le Pen’s anti-EU sentiment and admiration of Russian President Vladimir Putin are some of the main risks. 

Yesterday, the French president Emmanuel Macron won 27.6 percent of the vote with his rival Le Pen getting 23.4 percent of the vote. This is Le Pen’s third appearance in the first round of a presidential election. While polling suggests Macron will retain presidency in two weeks, the clash with Le Pen will be very close.

Europe and Washington eyeing French elections

The narrowing poll predictions suggest that Europe and Washington will be closely watching the campaign in the coming days, as allies would want to see whether Paris will remain a partner in the war against Russia in Ukraine. Investors will closely watch the upcoming debate on the 20th of April where Le Pen will try to project a more sophisticated and smoother image.

Despite her condemnation of the war in Ukraine, there are concerns about Le Pen who has had relations with Russia and received party loans from a Russian bank. In regards to NATO, she has openly stated her desire to pull the EU’s only nuclear power out of the alliance’s integrated command structure “so as to be no longer caught up in conflicts that are not ours.” If she wins in the presidential elections, she also poses risks to the European Union. Her party, the National Rally, may have removed its proposal to leave the EU, the free-movement Schengen zone and the euro, but she remains a Eurosceptic and has plans to reduce contributions to the EU and promote a coalition with like-minded politicians from Hungary and Poland.

She has also been accused that she plans a “Frexit” as some of her campaign proposals contradict the EU’s free movement principles, including her interest in renegotiating the agreement on the Schengen area and replacing it with simplified checks for EU citizens.

Euro concerns

The euro had underperformed on Friday due to the tightening in polls and proximity of the Sunday vote. Analysts noted that the currency market has not really assessed the risks for the euro, including the war in Ukraine, political uncertainty in France, and policy divergence between the ECB and the Fed, as the latter is expected to raise rates faster and more aggressively.

Some analysts have said that, with Le Pen not looking to take France out of the EU, her threat is minimised, and any anxiety related to the election won’t have a massive effect on the euro.

Others have warned that if she wins, she will isolate France from the rest of the EU, as she seeks to cut EU budget contributions and renegotiate agreements.

While the dangers for the currency market might be lower than those in 2017, this year’s election still remains crucial. With the war in Ukraine and the energy crisis, a far-right government would lead to the market lowering its expectations for further integration and a possible coordinated fiscal response to the energy crisis and will eventually weaken the euro.

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound has weakened after the Bank of England’s cautious guidance that markets are expecting more interest rate hikes than the Bank thinks are necessary. The UK currency fell against all its major peers in response to the divergence between what the market is expecting and what the Bank will deliver. The Bank's Monetary Policy Committee (MPC) on Thursday voted 8-1 to hike rates by 25 basis points.

While the Bank admitted that further hikes could be necessary, it noted that the market's expectation for the Bank Rate to be at 2.0% by the end of the year was too extreme. The news has disappointed markets as the Bank’s tone was not as hawkish and optimistic as expected. The market was pricing in a further 134 basis points of hikes for 2022 but after Thursday’s policy update, this has been reduced to 123 points.

BoE concerns

The Bank is now clearly concerned that the war in Ukraine will push inflation higher and will affect consumers and businesses, slowing down economic growth. With higher energy, food and commodity prices having increased due to the war in Ukraine, inflations will skyrocket to around 8% in April according to the Bank's forecasts.

The Bank worries that inflation will hurt demand as it expects it to fall faster than initially forecast over the medium-term. Hiking interest rates over-aggressively will help very little when inflation falls back. This is why the Bank has reduced some of its rate hike expectations. The Bank’s more dovish and cautious tone has weakened the pound, as markets are slowly digesting the news.

The foreign exchange market has diminished its expectations for 50bps hikes to be delivered at upcoming policy meetings and expects four more 25bps hikes at successive meetings up until September with another rate hike in 2023. The need for a more modest approach in the coming months is something that the Bank now considers to be more appropriate.

According to analysts, the Bank is in a difficult position as it is raising rates to tame inflation due to supply chain issues while at the same time the cost-of-living squeeze is affecting households.

The war in Ukraine will continue to hurt the pound and a possible de-escalation will offer support to the British currency.

ECB and the euro

The pound is expected to remain supported as analysts say, since the BoE will continue its interest rate hikes, but in the long term, the euro could benefit from expectations that the European Central Bank (ECB) will start changing its monetary policy and raise interest rates soon. According to Reuters, the President of European Central Bank, Christine Lagarde, said on Thursday during a news conference that the ECB has no intention of raising interest rates until some time after it has ended its bond buying programme at the end of the third quarter. Lagarde said: "Any adjustment to the key ECB interest rates will take place some time after the end of our net purchases under the APP (Asset Purchase Programme) and will be gradual.” Markets are now pricing in around 43bps worth of interest rate hikes this year. Investors have scaled back their expectations on rate hikes since the war in Ukraine broke out. The ECB president had discussed raising interest rates at a news conference on the 2nd of February despite insisting in the past that such a move was "very unlikely" in 2022.

In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound was lower against the US dollar amid a cautious market mood. The latest peace talks between Russia and Ukraine have failed, and the two sides have not yet reached a ceasefire agreement. The war and US inflation fears will boost the US dollar's haven demand. The pound is stronger against the euro, but if sentiment declines further then both currencies will lose value against the dollar. However, analysts believe the pound could rise against the euro. With uncertainty and the possibility of a breakthrough in the negotiations looking highly unlikely, the foreign exchange market will remain volatile.

Russia – Ukraine talks

No progress has been made after a meeting on Thursday between Ukrainian Foreign Minister Dmytro Kuleba and Russian Foreign Minister Sergei Lavrov in Turkey's Antalya. Ukraine’s foreign minister said he discussed a 24-hour ceasefire with his Russian counterpart who defended the invasion and said it was going as planned. The meeting is the first high-level contact between the two sides since Moscow invaded Ukraine at the end of February. While officials from Kyiv and Moscow have met previously, this is the first time Russia sent a minister for discussions.

Lavrov said Russia wants to continue the negotiations with Ukraine and underlined that Russia would not have started the war if the West approved “our proposal on security guarantees.” He added: “Until the end, we wanted to resolve the situation in Ukraine through diplomatic means.”

Market optimism could be hurt from the risk of a further escalation in tensions between Russia and the West, while investors are concerned about inflationary pressures’ impact on the global economic outlook. This will limit any potential gains for the pound against the US dollar, and with little economic releases from the UK, the British currency will be driven by US dollar dynamics. 

Euro

The euro held most of its gains from yesterday as investors await the latest ECB policy decision for  fresh stimulus. The war in Ukraine might not push the ECB to change its hawkish stance especially when inflation is so high. The risk of a further escalation of tensions between Russia and the West could push the euro lower.

Bank of England

Uncertainty from the invasion of Ukraine will limit the number of rate hikes by the Bank of England (BoE) despite concerns for embedded inflation. Economists at Westpac note that the GBP/USD pair is at risk of suffering a sharp decline. Concerns about the cost of living will limit any upside potential for the pound and further rate rises. They said: “BoE had cited the cost-of-living pressures as a reason for a more gradual tightening path, but they will also be unable to ignore surging inflation. The net outcome is likely to be a lower and slower path of withdrawing accommodation.”

Global Inflation concerns

Markets remain concerned with rising inflation and commodity prices which could lead to a global recession. A global growth slowdown will support the safe-haven US dollar.

The euro however found support from the prospect of EU member states issuing a joint bond to finance increased defence spending and ease the impact of the energy crisis. The European Council will meet today in Versailles, France and more details might become clear. Analysts noted that such plans could end up being steeped in bureaucracy.

If the war in Ukraine continues, the euro will be lower against commodity and safe-haven currencies. Volatility will continue in the currency markets, while the exclusion of Russian commodity exports from global markets will increase inflation and require the establishment of new supply chains and routes.

The pound rose against the US dollar, and the euro strengthened as global market sentiment has improved. With improved global investor mood and news that European countries could issue a joint bond to finance new defence spending and the area’s energy crisis, the euro rose. Stock markets rallied following the positive market sentiment.  

Reports suggesting that Ukraine won’t insist on NATO membership has also boosted hopes of a de-escalation of the crisis ahead of Thursday's meeting between Russian Foreign Minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba.

For the moment, risk sentiment is the main market driver, and the pound could extend its recovery if the situation improves.

Russia has agreed to a new 12-hour ceasefire to allow civilians to flee some of the most affected areas in Ukraine, according to Ukraine's Deputy PM Iryna Vereshchuk.

Bank of England

On Tuesday, the British government announced that it will slowly reduce its imports of Russian oil and oil products by the end of this year. Economic activity will be hurt by the rising oil prices, Bank of England (BOE) Monetary Policy Committee Member Silvana Tenreyro said at a discussion hosted by Britain's Economic Research Council. She added that there was no immediate evidence of a wage-price spiral in the UK. She explained that policymakers would begin to review economic activity at March's Monetary Policy Committee meeting and when the BoE next updates its forecasts in May. She noted: "Recent developments will intensify the terms of trade shock that we were already experiencing, so will push up inflation and have a negative impact on activity. How exactly? That's the job we will start next week.”

Financial markets still expect the BoE to raise rates from 0.5% to 0.75% on the 17th of March, and as high as 1.5% by August in order to control surging inflation from becoming rooted.

She clarified that if the UK's action on Russian oil imports weighs on growth, then the BOE could avoid tightening monetary policy, but such a move could hurt the pound.

Euro

The euro rose on Wednesday due to improved sentiment and news that the EU Commission will announce plans of EU countries jointly issuing bonds to finance energy and defence spending. The move is seen as supportive of the common currency. The prospect of joint bond issuance has boost sentiment and helped to push the euro higher.

The plan for the jointly issued debt will be announced at Thursday's meeting of the European Council where leaders will meet to discuss the ongoing war in Ukraine. Bloomberg reported that the EU Commission could issue bonds and then send the funds to member states in the form of concessionary loans to finance spending in those countries.

The euro dropped against the dollar, pound and other major currencies since the war in Ukraine began due to diminished expectations about the Eurozone’s economic growth. The euro and European currencies have been hurt by the war and could drop even further if the situation worsens. Markets will remain highly sensitive to news and developments relating to the war in Ukraine. The pound will remain under pressure against the US dollar but supported against the euro if the conflict continues.

Sterling could record new gains against the US dollar in the coming weeks as more economic releases support expectations for Bank of England (BoE) tightening.

FX Strategists at UOB Group, have noted that the pound rose more than expected yesterday and this upward momentum could continue unless the British currency falls within the next couple of days.

However, the persistent Russia-Ukraine tensions will continue to impact on both the pound to euro and the pound to US dollar exchange rates.

GBP/EUR and GBP/USD: Ukraine-Russia tensions

The pound could maintain an upward trend against the euro, but analysts believe that the euro will prevail. The main driver for the pound to euro exchange rate is the Ukraine-Russian situation. The last week, we have witnessed the pound rising and falling, before recovering as news on the geopolitical tensions created volatility.  On Wednesday, optimism returned to markets but soon faded as it was made clear that nothing has changed and that over 120K Russian troops were still stationed on Ukraine's borders with little progress having been made.

This is why the pound to euro exchange rate will move according to news and speculation relating to the Ukraine-Russia issue.

The uncertainty about the Russia-Ukraine conflict will also put the pound to US dollar exchange rate at risk. Reports claiming that Ukraine has bombed separatists' positions in east Ukraine caused safe-haven flows to dominate the markets. Ukraine denied these claims and the Ukrainian military reported that Russian occupying forces fired on a village in the Luhansk region. A senior White House official said that Russia’s claim that is moving troops away from Ukraine’s border is false. He also warned that Russia could launch a false pretext to invade Ukraine at any moment. These developments have soured market mood as investors remain on edge.

A further escalation of geopolitical tensions could weigh on GBP/USD while a positive shift in risk sentiment will boost the pound.

European Central Bank

The turn in the European Central Bank’s policy which was announced on their 3rd of February update has supported the euro. The ECB said that due to inflationary pressures they would no longer be against a rate hike in 2022, which has led the market to price in a number of 10 point hikes to the Deposit Rate, that would take it back to 0% by the end of 2022. For the GBP/EUR currency exchange rate, what will determine its performance will be the timing of monetary policy tightening in relation to that of the Bank of England.

Foreign exchange strategists at HSBC believe that the euro will rise against the pound as they see  the Bank of England disappointing market expectations. They said: "We think there appears to be room for the Bank of England to disappoint relative to market pricing, which has more than a 50% chance of a 50bp hike.”

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According to Bloomberg, traders are increasingly pessimistic about the pound as they expect the currency to post further declines. Meanwhile, weakened euro sentiment due to the new Covid restrictions has allowed the pound to remain supported, but this will be limited, as analysts have noted.

Pound pessimism

The pound pessimism is due to a range factors. On the one hand, markets are becoming pessimistic and fear that the Bank of England will not raise interest rates in December. Others are even fearing that a tighter policy will damage the economy. On the other hand, the US dollar is strong on expectations of the Federal Reserve reducing its stimulus programme. Traders are pessimistic as they are concerned about the growth outlook for Britain, with persisting issues as Covid and Brexit uncertainty. There are also concerns that a near-term rate hike will damage the economy and will be a huge policy mistake.

While markets expect an interest rate hike in December, recent comments by Bank of England Governor Andrew Bailey and Chief Economist Huw Pill have cast more doubt, with traders becoming more cautious about unexpected pound volatility. The pound has fallen more than 5% in the past six months. On Monday, it fell again as the dollar rose following news that Jerome Powell was nominated to a second term as the Federal Reserve’s chair.

Analysts expect the pound to fall even further. They believe the UK is exposed to global economic forces and, while supply chain issues are starting to be resolved, there are economic obstacles ahead.

Covid restrictions and the euro

The pound is holding against the euro due to deteriorating sentiment towards the Eurozone following the reintroduction of Covid lockdown restrictions. While the impact is relatively limited, the euro could fall further if Germany introduces tighter restrictions in the coming days.

Covid cases and hospitalisations are on the rise in Germany, and if Covid concerns increase then the euro will suffer more.

The euro has been hurt by the rising cases across the bloc, which has reinforced the dovish outlook for the European Central Bank’s policy.

Germany's response has been to push for higher vaccination rates and increased restrictions for unvaccinated citizens. Germany is worried about the current situation and wants to control it with additional measures to curb a fourth wave in December.

Some economists believe that the current restrictions in the Eurozone will have a limited impact on the economy than previous ones, as the outlook in the long term is positive. Euro weakness is believed to be limited as sentiment could return once the spike in Covid cases reaches its peak. So, if the right measures are taken today to control the spread of the virus, then the potential and short-term euro weakness will be for the benefit of long-term economic recovery.

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

Sterling’s major weakness in the near future is a potential weakening in risk sentiment which will also weigh on global stock markets, hitting risk-correlated currencies. According to analysts, global risk sentiment will remain one of the key external drivers of the UK currency. At the same time, if global developments improve and equities stabilise, the pound will still need a boost from domestic factors such as stronger domestic data to recover some of its most recent losses. For the pound to continue to strengthen, the market will need to become convinced that the medium-term growth outlook for the UK economy is improving markedly. This would require some real productivity gains to be realised over the coming months and years.

While UK fundamentals have proven to be supportive, the global picture is very important for Sterling, especially when stock markets suffer, risk sentiment is low, and investors are usually spooked.

Risk appetite in global financial markets

Analysts have noticed a pattern emerging where the pound falls against the euro in times of risk off conditions. The pound commonly benefits from strong global growth, which has also been the case for the euro. When there is limited financial risk, investors tend to take more risks, therefore creating a “risk-on” situation. However, when there is uncertainty and high volatility, what is also called a “risk-off” environment, traders want to avoid risk and they sell their higher-yielding assets and move their funds to safe-haven currencies.

The euro as a risk-off currency

While the euro like the pound has been the beneficiary of positive market sentiment, more recently, this has changed, and it seems that the single currency benefits against the pound when global investor sentiment weakens. What this means, is that the euro has become a risk off currency.

  • Risk off currency

A risk off currency gains when stock markets decline as investors want to avoid risk and sell their risky assets.

  • Cyclical currency

The euro used to be seen as a cyclical currency but is much less now. Cyclical currencies such as the pound and AUD tend to appreciate when global economic growth is expanding, unlike the US dollar, the yen and Franc which are seen as safe havens.

The euro has benefited when stock markets are selling off and it has given the impression that is a safe-haven asset. According to research from HSBC, due to the low interest rate environment in the Eurozone, billions of cheap euros are borrowed, sold and repatriated into euros, creating demand on the currency and “establishing an impression that it is now a 'safe haven' asset during times of market stress.” Head of FX Research at HSBC Paul Mackel explained that this shift in the euro “comes down to the low growth, low rates environment that has become seemingly endemic in the region,” and is “a consequence of the ECB’s quantitative easing programme and shift to negative rates.” Mackel added that "Signs that rates may be lower for even longer could encourage these outflows to continue, or even exacerbate them.”

"For many years, the EUR was seen as a cyclical play, which benefited from strong global growth. However, the last decade or so has seen overseas asset accumulation outstrip inflows from foreign investors. This could start to change the way in which the EUR behaves,” Mackel said.  

Pound-Euro outlook

If you are a business exchanging pounds to euros or vice versa, it is beneficial to understand this dynamic and how risk sentiment and appetite affect the currency pair. For the pound then to appreciate against the euro, there will need to be improvement in global market conditions. If, on the contrary, global growth and markets are at risk, the euro could appreciate. The rapid spread of another Covid variant or any quick move by the Federal Reserve to withdraw its financial support are seen as major risks to the global economy and the pound in particular.

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound has potential to rise further as more positive news is expected, while some risks remain relating to concerns about the pandemic and a rising euro. The latest Lloyds business barometer for the month of May rose to a three-year high, while Gertjan Vlieghe, an outgoing Monetary Policy Committee member at the Bank of England (BoE), said on Thursday that interest rates could rise by the middle of next year. At the same time, with a thin economic calendar the pound could fluctuate unpredictably in what is expected to be a volatile week ahead. also mean that the pound

Rising Renmbibi exchange rates

The Pound-to-Euro exchange rate could be volatile with the potential to rise higher if the recent boost in Renminbi exchange rates leads the Peoples’ Bank of China (PBoC) to buy non-Dollar currencies in a bid to ward off dollar appreciation pressures. China’s exchange rates rose after a decision to allow USD/CNH to fall. The move was the result of concerns regarding rising Dollar-denominated commodity prices and was driven by an attempt to offset the increase through a stronger exchange rate. This eventually resulted in the rise of other Chinese exchange rates that are a macroeconomic hazard for the PBoC, as research analysts have noted. The fall of the USD/CNH supported the Renminbi against all China Foreign Exchange Trade System (CFETS) currencies.

The rise of Renminbi is problematic for the PBoC because it results in cheaper imported goods and could drive the bank to buy other currencies in an attempt to reduce its other exchange rates. In general, a prolonged period of RMB appreciation and USD weakness could become an issue for policymakers and the PBoC could use further administrative tools to control this.

The currency pair could also be further affected by the BoE Governor Andrew Bailey’s speech on Tuesday on the subject of "Building a Finance System Fit for a Clean, Resilient and Just Future."

Euro appreciation could drive pound lower

Analysts have explained that the euro could be the main currency in Europe to benefit from the PBoC’s potential attempt to manage extreme currency appreciation. The pound-to-euro exchange rate has performed well, However, if the euro rises, this will potentially push the pound to euro rate lower. On Wednesday, when the ECB releases a report on the international role of the euro, the common currency could rise, and this could possibly push the pound lower.

Covid-19

At the moment, the markets might be relatively calm in both the US and the UK, and after Friday's volatile trading, but fears of Covid-19 variants may send sterling down, some analysts are saying. FXStreet’s analyst Yohay Elam stated that “People residing in the UK may enjoy the long weekend at home and in several European countries – but not in France nor Germany, where they are required to quarantine. These restrictions serve as a reminder of the B.1.167.2 variant. Sterling is on the back foot due to these fears.”

Are you transferring funds abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.