Pound to Euro Rate Wavers amid Rising UK Borrowing and Russia-Ukraine Fears

November 22, 2024 - Written by John Cameron

STORY LINK Pound to Euro Rate Wavers amid Rising UK Borrowing and Russia-Ukraine Fears

The Pound Euro (GBP/EUR) exchange rate wavered sideways on Thursday as rising UK borrowing costs and flaring tensions in the Russia-Ukraine war weighed on both currencies.

The Pound (GBP) declined on Thursday as higher-than-expected UK government borrowing figures raised concerns about the state of the public finances.

Data from the Office for National Statistics (ONS) revealed that public sector borrowing surged to £17.4bn in October – the second-highest October borrowing on record and significantly above the £12.3bn forecast by City economists.

The figures present a challenge for Chancellor Rachel Reeves, highlighting her limited fiscal flexibility despite introducing significant tax increases in the recent Autumn Budget.

With rising spending and debt servicing costs straining government resources, there are growing concerns that Reeves may face pressure to make further unpopular decisions in the spring.

The Euro (EUR) came under pressure on Thursday as escalating tensions in the Russia-Ukraine conflict weighed on the common currency.

The situation intensified after Ukraine used US-supplied long-range missiles to strike within Russian territory, following authorisation from US President Joe Biden. In response, Ukraine claimed that Russia fired an intercontinental ballistic missile at its territory on Thursday – the first such attack since the war began.

These developments not only unsettled markets but also dragged the Euro lower. Additionally, the single currency faced further pressure due to its strong negative correlation with a strengthening US Dollar (USD).

Friday could see notable volatility in the Pound Euro exchange rate as both the UK and Eurozone release important economic data.

The session begins with the UK’s latest retail sales figures. Forecasts point to a 0.3% contraction in British sales growth for October, which could weigh on the Pound.

Attention will then shift to the preliminary PMI reports. In the UK, private sector activity is expected to have remained steady but subdued in November, likely offering little support to Sterling.

Similarly, Eurozone PMIs are forecast to show ongoing sluggishness in business activity across the bloc, which may limit the Euro’s ability to gain ground against the Pound. However, any surprises in the PMI data could trigger sharp movements in the exchange rate.

Adding to the Euro’s sensitivity, European Central Bank (ECB) President Christine Lagarde is set to deliver a speech on Friday morning. If Lagarde highlights concerns over the Eurozone’s economic fragility or signals the possibility of further interest rate cuts, the common currency could weaken.

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TAGS: Pound Euro Forecasts