Pound Euro Exchange Rate News: GBP/EUR Drops as Hunt Delivers Autumn Statement

November 17, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Drops as Hunt Delivers Autumn Statement

GBP/EUR Exchange Rate Weighed Down by Hunt’s Autumn Statement

The Pound to Euro (GBP/EUR) exchange rate traded narrowly on Thursday, after UK Chancellor Jeremy Hunt delivered his long-awaited Autumn Statement.

At time of writing the GBP/EUR exchange rate traded at around €1.1422, which was roughly down 0.3% from Thursday’s opening rate.

Pound (GBP) Under Pressure in Wake of Autumn Statement

The Pound (GBP) was down against the majority of its peers on Thursday as investors turned their attention to the UK government’s Autumn Statement.

Chancellor Jeremy Hunt’s statement outlined cuts to public spending worth £30bn and an increase in taxes estimated to bring in an extra £24bn to fill the black hole in public finances.

During his address Hunt claimed the measures outlined in his statement would ensure a shallower recession and that it was:

‘[A] balanced plan for stability’.

Reactions to the statement were mixed. GBP investors welcomed the extension of the energy price cap guarantee, as well as Hunt’s announcement that benefits would rise in line with inflation to support vulnerable consumers during the recession.

However, GBP investors were also concerned that the tax increase and spending cut could weigh on growth.

Also dragging on the Pound was the Office for Budget Responsibility’s (OBR) accompanying forecasts. The OBR predicts the UK economy will shrink by 1.4% next year and that unemployment is expected to climb from its current lows.

Whilst Hunt’s plan focused long-term goals this did little to soothe investors in the short-term. Headline inflation is at 11.1%, so news of dropping GDP, coupled with an expected increase in the unemployment rate next year stoked further concerns about the cost-of-living-crisis.

Overall, Hunt’s statement seemed to go down with markets far better than his predecessor’s disastrous mini-budget and has gone some way towards restoring the UK’s economic credibility.

Euro (EUR) Gains Capped by Weaker-than-Expected Inflation

The Euro (EUR) saw its upside limited on Thursday, spurred on by a weaker-than-expected inflation print.

October's finalised CPI release reported inflation in the Eurozone rose from 9.9% to 10.6%, coming in just short of preliminary figures which suggested a 10.7% increase. Core inflation climbed from 4.8% to 5%. As a result, the Euro saw its potential capped as investors digested the news.

The slightly slower-than-expected inflation release moderated expectations for the European Central Bank’s (ECB) next interest rate decision.

However consistently hawkish rhetoric from the ECB has mean this has only had a very limited impact on the Euro.

During an interview on Wednesday ECB Vice President Luis de Guindos said the bank would do ‘whatever is necessary’ to bring inflation down. According to Guindos prioritising price stability is the key to avoiding a further inflation woes:

‘That’s why we are making such a commitment with price stability … and that we will do whatever is necessary in order to reduce inflation to the level that we consider as price stability, which is 2%’.

GBP/EUR Exchange Rate Forecast: Euro to be Lifted by Lagarde?

Looking ahead, the Pound Euro exchange rate could be driven ECB President Christine Lagarde on Friday.

Given the bloc’s inflation data and the ECB’s commitment to ease inflation, EUR investors will be listening for any hints regarding the next interest rate rise. If Lagarde remains broadly hawkish in her outlook for monetary policy than the Euro will likely climb on increased rate hike bets.

Turning to the UK, it’s possible that retail sales figures could help push the Pound higher on Friday. Sales are forecast to rise from -1.4% to 0.3% in October. This small increase could help ease recession concerns somewhat. However, if sales continue to drop then so could Sterling

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts