The Pound Euro exchange rate trended broadly higher this week as concerns over European energy security weighed heavily on the Euro.
Euro sinks amid European energy price crisis
The Pound Euro exchange rate climbed around a cent this week, most as a result of a clear EUR selling bias.
This was most notable at the start of the session as EUR investors reacted to the news that Russia’s Gasprom would be shutting down the Nord Stream 1 pipeline for a few days at the end of August for ‘unscheduled maintenance’.
Fears that this could see gas flows into Europe reduced even further sent European gas prices skyrocketing, reviving fears of a European energy crisis and stoking speculation the Eurozone will slip into a recession later this year.
These recession fears were reinforced by the release of the Eurozone’s latest PMI figures as they revealed the bloc’s private sector remained firmly in contraction this month.
A short-lived pullback in the US dollar offered a brief reprieve for the Euro in the middle of the week, before coming under renewed selling pressure in the latter half of the session.
While the Pound was able to advance against a weakened Euro this week, it struggled to replicate this success against its other peers.
Weighing on Sterling sentiment throughout the week were concerns over the impact of widespread industrial action on the UK economy as well as a massive increase in the energy price cap.
However reports suggesting the Bank of England (BoE) could raise interest rates to 4% in the first half of 2023 did provide some cheer for the Pound.
Acceleration in Eurozone inflation to boost the Euro?
The publication of the Eurozone’s latest consumer price index is likely to act as a key catalyst of movement in the Pound Euro exchange rate next week.
Wednesday’s figures are expected to report Eurozone inflation continued to accelerate in August. This is likely to place more pressure on the European Central Bank (ECB) to continue raising interest rate at an aggressive pace and bolster the Euro in the process.
Of course any upside in EUR exchange rates will likely be dependant on developments regarding the Nord Stream 1 pipeline, if the ‘unscheduled maintenance’ drags on, the prospect of a gas shortage could see the Euro face an uphill battle.
The Pound is also likely to be vulnerable to concerns over energy prices, amid wider concerns over the UK economy.
Meanwhile, the final week of the Conservative leadership race could also infuse some volatility into GBP exchange rates.
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