Pound Euro Exchange Rate News: GBP/EUR Soars as Investors await Hunt’s Afternoon Address

October 17, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Soars as Investors await Hunt’s Afternoon Address

GBP/EUR Exchange Rate Rises amid Speech Speculation

The Pound to Euro (GBP/EUR) exchange rate strengthened on Monday as investors responded to a speech from Chancellor Jeremy Hunt focusing on changes to the government’s fiscal plan.

At time of writing the GBP/EUR exchange rate traded at around €1.1579, which was up roughly 0.7% from Monday’s opening rate.

Pound (GBP) Rallies on Hunt’s Emergency Statement

The Pound (GBP) found a lot of support on Monday, firming against most of its peers as Hunt prepared to give a speech in the afternoon.

Hunt succeeded Kwasi Kwarteng as the new Chancellor of the Exchequer on Friday. On Monday in an emergency statement Hunt set out to cut the mini-budget’s cost by two-thirds, which would raise an extra £32bn per year for the Treasury.

In his statement Hunt said:

‘We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation.

‘So whilst we will continue with the abolition of the health and social care levy and stamp duty changes, we will no longer be proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms introduced in 2017 and 2021, the new VAT-free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.’

Although this huge overhaul of the ill-received budget boosted the Pound, Sterling’s gains were somewhat capped by remaining uncertainty amongst GBP investors. Some believe that the extensive damage caused by the original fiscal plan has dented UK credibility, which will continue to weigh on the Pound in the long term.

In addition, the UK faces renewed political uncertainty, with Liz Truss’s position as Prime Minister looking increasingly untenable.

Euro (EUR) on the Back Foot as Warfare Escalates

The Euro (EUR) was struggling to find support against the majority of its peers on Monday as warfare continued to escalate between Ukraine and Russia.

Russian drone strikes saw a least three people killed and three more hospitalised. This follows missile attacks from last week. EU officials are to investigate whether the drones were supplied by Iran.

In an address Vitali Klitschko, the mayor of Kyiv, said:

‘The Russians are not only destroying our energy systems, they are destroying our country. I clearly understand that Putin needs Ukraine without Ukrainians. Now there is an attack on residential buildings where innocent people live. This is not the first case. Last week, we saw how a rocket flew into a children’s playground in the centre of the city and people died there.’

This statement follows reports that the Zaporizhzhia nuclear power plant was cut off from external supply again. This put considerable strain on those in Ukraine and also stoked fears amongst investors about the impact rising geopolitical tensions could continue to have on the single currency.

GBP/EUR Exchange Rate Forecast: Mini-Budget Overhaul to Drive GBP?

Looking ahead, the Pound Euro exchange rate could be driven by continued developments around the mini-budget.

Hunt is due to give a speech on Monday afternoon, which will give further details of the government’s fiscal plan and overall government spending. This is an attempt to further soothe investors’ concerns.

If investors continue to react positively, then the Pound could continue its recovery. However, it is possible that political volatility within the Conservative Party could weigh on UK markets and cap Sterling’s gains.

Turning to the Euro, a speech from European Central Bank (ECB) policymaker Philip Lane could create fresh impetus for the single currency. EUR investors are pricing in a 75bps interest rate hike at the next monetary policy meeting. Any hawkish comments from Lane could support the Euro.

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