The British Pound to Euro dropped 0.69% on September 20, 2021, as it slid from 1.1720 to 1.1640 levels on Monday, as the energy crisis rocks the economy.
The EUR/GBP pair took support at the September lows at 0.8530 and is trading higher. It surged sharply by 0.65% in the past two days, rising to 0.8588 levels during trading hours on Tuesday, September 21, 2021.
GBP/EUR under Pressure with Energy Crisis
The UK is a net importer of fuels from the European region. . European gas supply is under pressure, and it may turn into a crisis that will hurt the British Pound. As the EU supply to China increases, gas prices in the UK increase, with gas supply coming down.
Gas prices quadrupled last year. Prices shot up 70% last month. As China increases imports, gas shipments from the EU are moving away from the UK towards China.
UK-EU trade agreements are due to end, as grace periods are coming to a close. There are fundamental differences that need resolving over post-Brexit protocol. There is a severe labor shortage in the UK with an exodus of EU workers from Britain.
Bank of England may tighten policy rates by late next. The Office for National Statistics reports that UK public sector borrowing shows the second-highest increase. We have to get our public finances on track to keep debt under control, says UK Chancellor Rishi Sunak. Public sector net borrowing is at £6.3 billion, increasing £2.9 billion, year on year.
Retail sales in the UK report most disruption as supply chains hit sales. There is a drop in food store sales as people prefer to dine out following the lifting of Covid-19 restrictions. The Office for National Statistics states that retail supply chains fell 6.5%, while online sales show improved performance of 27.7% in August compared to 27.1% in July.
EUR/USD Supported at 1.1725 Levels
EUR/USD has taken support at the 1.1725 levels. 1.17 levels have been supporting the currency pair. On the upside, the 1.1740 levels have been strong resistance levels.
Norway supplies crude oil and natural gas to the UK. The United Kingdom gets crude oil of around 46.9 million metric tons. The EU energy supply may get destabilized if there is a high proportion supplied to limited countries. With China requiring more crude oil, there is a heavy shortage in the Eurozone.
The huge stimulus scheme of €750 billion will bring in fiscal integration. Policy support is for policy integration. Interest rates are at historic lows, and the economy is abundant in liquidity from the recovery fund by the government.
The European economy has become robust, with Germany showing improvement. Lagarde says that there may not be many downside risks.
ECB head Christine Lagarde says that loose monetary policy will continue for some time. The Delta variant has to come down before further decisions can take place says, Lagarde. The UK, the US, and China are the three main trading partners of the Euro region.
After the Brexit deal ended on December 31, 2020, there was a sharp decline in trade between the two regions, the UK and the EU. Duties imposed on trade causes disruptions in the supply chain. UK is the third-largest trading partner of the European Union, following China and the US. Further international trade is badly affected by the Covid-19 pandemic.
EUR/JPY on Free Fall
EUR/JPY is on a free fall, with a negative momentum setting in for the past six trading days. The EUR/JPY pair is on a downtrend from the 130.66 levels, where it was during the first week of September. It has lost 1.79%, as it trades below the daily moving average. The inverse V-shaped pattern does not augur well for the currency pair.
EUR/SEK Within a Narrow Range
The Swedish Riksbank keeps the repo rate on hold. There will be no change in repo rate for another three years, states the central bank. The EUR/SEK has strong support at the 10.00 levels as it trades within a narrow range between 10.12 and 10.20 in September.
US Dollar Index Ahead of Fed Meeting
The Federal Reserve may not bring in policy changes, say experts. However, it may announce bond tapering measures by the end of the year. If Federal Chairman Jerome Powell pushes such measures to December, it may cheer the forex market.
The Fed meeting and the PBOC meeting on Wednesday cause jitters among investors.
Evergrande Crisis in China Affects Forex Markets
Evergrande is one of the leading real estate firms in China. The Evergrande collapse has rattled the stock and forex markets. It may be another “Lehman”, say traders. The global economy will face an impact by the crisis, say experts.
Evergrande faces a $300 billion debt. The People’s Bank of China will meet on Wednesday to discuss the situation.
China imports crude oil from the European Union. Demand for gas from China may rise to 360 billion cubic meters in 2021. Gas supply from the EU to the UK has gone down, while exports to China are climbing higher, disrupting supply to the United Kingdom.