The Pound Euro (GBP/EUR) exchange rate rose to a ten-week high on Monday as worries about the Russia–Ukraine war weighed on the common currency.
Pound to Euro (GBP/EUR): 1.15145 (+0.3%)
Pound to Dollar (GBP/USD): 1.34316 (-0.05%)
Euro to Dollar (EUR/USD): 1.16649 (-0.34%)
DAILY RECAP:
The Euro (EUR) fell on Monday as EUR investors became pessimistic about the outlook for the Russia–Ukraine war.
Following the US invasion of Venezuela and the capture of President Nicolas Maduro over the weekend, markets grew anxious about what this intervention could mean for the conflict in Eastern Europe.
Although peace negotiations between Moscow and Kyiv remain ongoing, so too does the fighting. Vladimir Putin has insisted any peace deal must recognise Russia’s control over annexed Ukrainian territory, stating these aims would be achieved through military force or diplomacy.
The US move in Venezuela was seen as potentially emboldening Moscow to push harder for territorial concessions, weighing on the Euro.
Further pressure came from a firmer US Dollar (USD) in the wake of the intervention, with EUR suffering due to its strong inverse correlation with the American currency.
Meanwhile, the Pound (GBP) drew modest support from shifting interest rate expectations at the Bank of England.
Following December’s rate cut, where the BoE struck a more hawkish tone than markets had expected, a slight repricing of policy expectations helped to underpin Sterling as the new year began.
However, the absence of UK economic data meant gains in the Pound were limited.
Near-Term GBP/EUR Forecast: Easing German Inflation to Weigh on the Euro?
Looking ahead, Tuesday brings the final services PMIs for both the Eurozone and the UK.
The Eurozone survey is expected to show a slowdown in service-sector activity in December, which could apply pressure to the Euro.
In the UK, the final services PMI may confirm an acceleration in activity, potentially offering Sterling modest support. That said, last week’s downward revision to the UK’s final manufacturing PMI leaves scope for disappointment if services data is similarly revised.
Attention then turns to Germany’s preliminary inflation figures for December. Inflation is forecast to have cooled from 2.3% to 2.0%, a result that could undermine EUR if interpreted as evidence of easing price pressures across the bloc and fuel more dovish expectations for the European Central Bank.
