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GBP/EUR Exchange Rate Forecast: Will Sunak’s Stimulus Package Be Enough to Prevent Mass Unemployment?

GBP/EUR Exchange Rate Steady in Wake of UK’s Supplementary Budget 

The Pound to Euro (GBP/EUR) exchange rate is holding in a narrow range this morning as markets continue to digest the stimulus measures announced by Chancellor Rishi Sunak on Wednesday. 

At the time of writing the GBP/EUR exchange rate is trading at around €1.1148, virtually unchanged from this morning’s opening rate. 

Upside in Pound (GBP) to be Capped by Threat of Mass Unemployment?

While the Pound (GBP) is currently trading at a three-week high against the Euro (EUR), there appears limited scope for further gains amidst concerns that the UK’s new stimulus measures will not be enough to avoid mass unemployment. 

In his summer statement yesterday, Chancellor Rishi Sunak announced a new stimulus package worth £30bn, largely aimed at protecting jobs in the industries worst hit by the coronavirus lockdown. 

However, economists warn that the measures do not go far enough, with the Chancellor’s decision to stick with plans to end the furlough scheme in October being branded a ‘cliff-edge’ for businesses. 

Speaking to Sky News this Morning, Sunak admitted that there will be ‘difficult times ahead’ and unemployment will inevitably rise. 

Sunak warned: 

‘I’ve been very clear that we are not going to be able to protect every single job and it would be wrong of me to pretend otherwise. 

‘There are going to be difficult times ahead and… there are forecasts for people predicting significant levels of unemployment.’ 

GBP investors are unsurprisingly concerned about the impact massive levels of unemployment could have on the UK economy, something which looks to limit the upside in Sterling going forward.  

EU Fund Concerns to Weigh on the Euro (EUR)? 

The Euro (EUR), meanwhile, is facing its open headwinds as a result of doubts over the EU’s €750bn coronavirus recovery fund. 

Despite being announced back in May, EU leaders are still yet to reach an agreement over how to implement the Fund, with European Council President Charles Michel warning of more work needing to be done. 

Speaking in the European Union (EU) parliament on Wednesday, Michel said: 

‘We need to find a workable solution quickly. My impression, after a round of consultations over the last few days, is that we haven’t yet finished our negotiations and we still have a lot of work to do. I think that we can conclude that some member states want to cooperate more than others.’ 

Next week will see EU leaders hold their first face-to-face summit since the coronavirus crisis began. Expect to see the Euro take a tumble if an agreement cannot be reached.