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Pound Euro Exchange Rate Slides to One-Week Low amidst Mounting UK Energy Crisis

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Pound Euro Exchange Rate Undermined by Surging Energy Prices

The Pound Euro (GBP/EUR) exchange rate in on the defensive this morning, as concerns over the UK’s mounting energy crisis take their toll on Sterling sentiment.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1681, down roughly 0.3% from this morning’s opening levels.

Pound (GBP) Weakened by Economic Concerns

The Pound (GBP) opens this week on the back foot as an emerging energy price crisis looks to raise further questions over the resilience of the UK’s economic recovery.

Gas prices have risen steadily over the past year as a result of high demand and limited supply, but these price rises have accelerated sharply over the past couple of the weeks to the point that it is now unprofitable for some industries to operate at peak times.

Analysts predict that a number of UK energy suppliers are also likely to go bust by the end of the year.

This has fed into concerns that the UK’s economic recovery could be stalling, as businesses also face hurdles due to staff shortages and supply constraints.  

Michael Hewson, Chief Market Analyst at CMC Markets, comments:

 ‘It is quite clear there is a growing sense of unease about the economic outlook as a growing number of companies look ahead to the prospect of rising costs, and the possible effects on their profit margins, at a time when central banks are coming under pressure to pull back on the generosity of their current stimulus measures.’

The Bank of England (BoE) will conclude its September policy meeting later this week. Will the current economic headwinds result in a more cautious outlook from the bank and place additional pressure on the Pound Euro exchange rate?

Euro (EUR) to Face Volatility ahead of Germany’s General Election

At the same time, the Euro’s (EUR) gains against the Pound have been tempered somewhat this morning amidst political uncertainty in Germany.

The Eurozone’s largest economy will go to the polls this weekend, with Germany set to elect its first new Chancellor after 16 years with Angela Merkel at the helm.

While the frontrunner to replace Merkel is largely seen as a ‘safe-pair of hands’, her role as the de facto head of the EU will mean her departure will leave a massive question mark over the future of the union.

Further capping the upside in the Euro is the broad strength of the US Dollar (USD) at the start of this week’s session, with the negative correlation between the world’s most traded currency pairing undermining the single currency.