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GBP/EUR Firms as UK Treasury Announces Business Support

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Pound Euro (GBP/EUR) Exchange Rate Gains as UK Government Announces Support Package

The Pound Euro (GBP/EUR) exchange rate is edging higher on Tuesday as the UK government held off introducing stricter Covid measures and the Treasury announced £1 billion support for hospitality and leisure firms.

After tumbling on Monday amid Omicron fears and the threat of tighter UK restrictions, the Pound Euro exchange rate has gained around 0.3% on Tuesday to trade at €1.1750 at the time of writing.

Pound (GBP) Strengthens despite Covid-19 Threat

The Pound (GBP) has stabilised and recovered some of Monday’s losses today after the UK government decided against increasing coronavirus restrictions despite soaring Covid-19 cases in the UK.

Following an emergency cabinet meeting, Prime Minister Boris Johnson did not announce any new measures but said the UK government ‘reserves the possibility’ to tighten restrictions.

Sterling has also received support after the UK Chancellor Rishi Sunak announced a £1 billion financial support package for businesses hit by the declining consumer confidence amid Omicron variant fears and soaring coronavirus infections.   

Sunak said:

“The spread of the Omicron variant means businesses in the hospitality and leisure sectors are facing huge uncertainty, at a crucial time.”

However, while UK Covid-19 infections continue remaining near record daily highs and the threat of tighter restrictions linger, the Pound Euro exchange rate could again come under pressure.

Meanwhile, signs of optimism in UK-EU post-Brexit trade talks over the Northern Ireland protocol may provide the Pound some support.

Following the resignation of lead UK negotiator Lord Frost last week, his replacement Liz Truss will meet EU counterpart Maroš Šefčovič on Tuesday to continue negotiations.

Some analysts see Truss as more likely to take a softer stance in talks than her predecessor, which may lead to progress in negotiations.

Comments from Ireland’s Taoiseach seemed to fuel optimism of progress, by saying:

“We were on a track – the European Union and the United Kingdom. I think we still are. I think Liz Truss gets it in terms of what is required.”

Euro (EUR) Dented by Falling Consumer Confidence

The Euro (EUR) weakened during Tuesday’s session as data revealed falling consumer confidence in the Eurozone and Germany.

Eurozone consumer confidence fell more-than-expected to an eight-month low in December as rising Covid-19 cases and far stricter Covid rules came into force, with more looming in many countries.

The Netherlands announced a strict lockdown over the weekend, with more expected to follow in an attempt to slow the spread of the Omicron coronavirus variant.

Meanwhile, January’s GfK consumer climate indicator for Germany declined far more than expected to indicate its lowest level since June as the fourth wave of coronavirus in the country pressured consumer sentiment.

Looking ahead, the spread of the Omicron variant and risk posed to economic activity by tighter restrictions in the bloc could further dent EUR sentiment.