Pound Euro Exchange Rate News: GBP/EUR Strengthened Despite Growing UK Political Unrest

October 13, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Strengthened Despite Growing UK Political Unrest

Pound (GBP) Under Pressure from Divided Government

The Pound (GBP) found modest support on Thursday amid turbulent economic issues compounded by growing unrest within Prime Minister Liz Truss’ Tory party.

With growing calls for a general election from the opposition, and even within the Conservatives, political uncertainty could only serve to further weigh on Sterling. With the mood around the Conservatives souring, murmurs from within the Tory party is that some MPs are pushing for a change in leadership.

Elsewhere, with the Bank of England (BoE) confirmed bringing an end to their bond-buying scheme this Friday, investors were again spooked over the volatility in the market. However, Mohamed El-Erian, Chief Economic Advisor at Aliianz, is confident that the BoE will continue to provide support if the market remains unstable. He added:

‘A central bank is like a doctor. If the patent is really ill and even if the patient has misbehaved it is very difficult for a doctor to walk away. So, the reality of central bank emergency interventions is that they tend to continue for longer than what is expected, and central banks simply will not walk away.’

Meanwhile, Chancellor Kwasi Kwarteng met with leaders from the International Monetary Fund (IMF). With the IMF recently criticising the UK government’s mini-budget, Kwarteng is under intense pressure to allay investors’ fears over the UK’s economic stability. Any further reversals of the highly contentious mini-budget could boost the Pound.

Euro (EUR) Subdued as German Inflation Reaches Highest Since 1990’s Reunification

Meanwhile, the Euro (EUR) remained under pressure as German CPI data was confirmed at 10%. Rising from 7.9% in August, the energy crisis continues to impact Europe’s largest economy.


Despite this, the main focus for Euro investors is the worsening situation in Ukraine. Since Russia has increased their attacks this week, the most intense airstrikes since the conflict started, a peaceful end to the resolution is seemingly impossible now. However, with Ukraine’s continued success in clawing back territory from Russia has buoyed hopes of an end to the conflict.

Wednesday night saw the United Nations vote on the validity of Russia’s annexation of Ukrainian territories. With a 143 to five vote in favour of declaring Putin’s move as illegal, 35 countries abstained. The four who sided with Russia were Syria, North Korea, Belarus, and Nicaragua. US President Biden said the vote sent a ‘clear message’ to Russia, and added:

‘The stakes of this conflict are clear to all, and the world has sent a clear message in response – Russia cannot erase a sovereign state from the map.
‘Russia cannot change borders by force. Russia cannot seize another country’s territory as its own.’

GBP/EUR Exchange Rate Forecast: US CPI Reading to Unnerve Pound Euro?

Looking ahead, the Pound Euro exchange rate could see volatile movements in the wake of the US inflation data. Due to the negative correlation the Euro shares with the US Dollar, a further rise in inflation could hamper the Euro. Likewise, increased interest rate hikes could dampen the Pound with the bond markets remaining volatile.

Elsewhere, economic instability in the UK could keep Sterling in volatile territory. Any further news of Tory rebellion or continued unrest within Truss’ government could weigh on GBP investor sentiment.

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TAGS: Pound Euro Forecasts