Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly as Risk Appetite Remains Fragile

April 7, 2022 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Trades Narrowly as Risk Appetite Remains Fragile

Pound Euro (GBP/EUR) Exchange Rate Rangebound amid Volatile Risk Appetite

The Pound Euro (GBP/EUR) exchange rate is trending sideways today. A lack of data today is leaving both currencies at the whims of risk appetite. The Pound is edging higher against many of its safer rivals despite pessimism from UK businesses over the country’s long-term outlook. The Euro meanwhile is struggling amid worries of a fresh Russian offensive in eastern Ukraine.

At time of writing the GBP/EUR exchange rate is at around €1.2005, virtually unchanged from this morning’s figures.

Euro (EUR) Dips as Ukraine Prepares for Fresh Russian Offensive

The Euro (EUR) is slipping against many of its rivals today. The war in Ukraine is continuing to heap pressure upon the single currency. A downtick to German bond yields is also pulling the Euro lower today. On the other hand, above-forecast retail sales for February may be helping to limit significant losses for EUR.

Peace efforts between Ukraine and Russia have continued to falter in recent days. On Sunday, reports from the town of Bucha indicated the widespread killing of civilians by Russian forces. The reports were met by outrage from the international community, with Ukrainian President Volodymyr Zelenskiy clearing labelling the actions as ‘war crimes’.

Attempts by the EU to impose further sanctions on Russia have been hampered by continued resistance from Germany. A proposed ban on Russian coal has been pushed from July to August. Continued resistance from the bloc’s largest member could limit gains for the single currency.

Warnings from Ukraine of a fresh Russian offensive in the country’s Donbas region are also likely to push the Euro lower today. Ukrainian officials have urged civilians to leave the east of the country ‘while the opportunity still exists’.

Better than expected retail sales for the Eurozone may be helping to keep the Euro propped up today. February’s retail sales rose 5% year-on-year above forecasts of 4.8%. Analysts highlighted fuel and non-food products as the main reason for the rise.

Pound (GBP) Edges Higher amid UK Business Fears

The Pound (GBP) is making gradual gains against many of its competitors today. Soaring prices and pessimism from businesses over the UK’s economic outlook may also be weighing upon Sterling today. On the other hand, a rise in UK consumer spending may be prompting some optimistic bets on GBP.

UK business are most concerned about the impact of rising goods and services prices, as well as soaring energy prices. The latest analysis from the Office for National Statistics (ONS) highlighted the accommodation and food services industries as those most concerned with the increase to energy prices.

Additionally, a survey conducted by the Bank of England (BoE) found that nearly 50% of UK businesses expect the war in Ukraine to negatively impact their sales over the next 12 months. This pessimism could weigh on the Pound over the course of today’s session.

A cautious market mood may also be limiting gains for Sterling today amid faltering Ukraine-Russia peace talks. The Kremlin warned today that the continued supply of weapons to Ukraine from Western nations will have a ‘negative effect’ on diplomatic efforts.

GBP/EUR Exchange Rate Forecast: Will either Central Banks Signal Hawkish Turn?

With no further significant data for the Pound this week, the currency’s movements are likely to be dictated by global risk appetite. On Thursday, a speech from Bank of England (BoE) policymaker Huw Pill could see GBP slip should he echo the central bank’s dovish stance.

The Euro also has no other significant data due this week. Further developments in the Ukraine-Russia conflict are likely to continue to weigh on the single currency. A speech from European Central Bank (ECB) board member Fabio Panetta on Friday could prompt some movement in EUR. The ECB has been particularly dovish recently although has recently signalled that it may be open to a 2022 rate hike.

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