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EUR/GBP at 0.8700 Levels as Energy Crisis Hits Euro Growth

The Euro to British Pound slipped to a two-year low in March 2020 but recovered in 2021 and 2022. The EUR/GBP is currently at 0.8699 on October 14, 2022.

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EUR/GBP at 0.8699

The EUR/GBP has to move past 0.8700 levels to rally higher. 0.8750 was a firm resistance for the Euro to British Pound in 2021 and 2022. In September and October, the EUR/GBP currency pair was able to pierce through this level but weakened again last week.

The EUR/GBP currency pair closed at 0.8699 last week, which provides psychological support to the forex currency pair.

The UK government took a U-turn amid high political chaos. The efforts taken by PM Truss on taxation strengthened the Pound, pulling the EUR/GBP currency pair lower.

Energy emergency plans may strengthen the Euro currency. The energy crunch has hit the Eurozone as the Russian-Ukraine conflict continues for eight months. The energy crisis may get critical in the winter months, which keeps the EUR/GBP currency pair below 0.8750.

EUR/GBP at 0.8699
EUR/GBP at 0.8699

EURO Weakens on Energy Crisis

Energy supply from Russia to other countries has come down significantly. Consumer prices have zoomed higher, especially food and energy prices. Europe faces huge supply chain disruptions, which are keeping energy prices high.

Europe imports most of its natural gas from Europe, as Russia supplies 40% natural gas and 30% crude oil to Europe. Germany is the largest importer in Europe. France is the second largest importer. Other European countries that depend on Russia for natural gas are Moldova, Herzegovina, Bosnia, and Macedonia. The United Kingdom is another importer of Russian gas.

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Europe depends on natural gas to generate electricity, meet industrial requirements, and combat the cold winter. As winter comes ahead, the Euro continent may face an energy crisis that will trigger an economic recession, fear analysts. The Russia-Ukraine war is on for almost eight months, and the conflict has hit the economy of most Euro countries. It has weakened the EUR/GBP currency pair.

Europe provided support to Ukraine against the Russian invasion. This gesture invoked the wrath of Russia, causing supply-chain disruptions in the energy sector in Europe.

Europe is seeking alternative measures to meet its energy requirements. Energy-saving measures are taken to keep domestic consumption lower. High utility bills have forced consumers to keep their energy demand lower. Despite the energy crisis, industrial production in the Eurozone has improved from 0.6% to 1.5%.

British Pound Strengthens with U-Turn by Government

The British Pound to US Dollar is trading below the 1.20 levels in September and October. The GBP/USD slipped to 1.0384 on September 26, 2022. However, it recovered marginally to close at 1.1170 on October 14, 2022.

The GBP/USD hit a new all-time low at 1.0384 as it slipped below the 2020 March lows at 1.1409.

The British Pound has weakened as investors await further action on the mini-budget by the UK government. Weakness persists in the British Pound as long as it trades below the psychological level of 1.20. Investors fear that the GBP/USD may move lower as the US Dollar rallies higher.

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The British Pound weakened to a fresh all-time low on September 26, 2022. Inflation continues to run high efforts taken by the Bank of England. High-interest rates affect consumers who have to pay more for their loans, weakening the Pound.

The newly elected Prime Minister Liz Truss took a U-turn on the corporate tax plans. The United Kingdom has a new Finance Minister Jeremy Hunt, after the dismissal of Kwasi Kwarteng. The tax plan announced by UK PM Truss created havoc on the stock and currency market, forcing the PM to make changes.

Corporate tax has been set higher to 25% from 18% to improve revenue for the economy. There are speculations that the new PM Truss may step down, which is good news for the Pound. Volatility in the Pound keeps investors away from the forex market. The unemployment rate has come down from 3.6% to 3.5%, which is good for the country. However, GDP month-month has dropped from 0% to -0.3%. Industrial production and manufacturing production indices have come down in the United Kingdom.

US Dollar Rally Continues

The US Dollar Index is at 113.20 on October 14, 2022.

Gold prices are under pressure, with the US Dollar Index rallying higher. Crude prices have come down as consumer inflation hits the economy.

The hawkish approach by the Fed has strengthened the greenback. The Fed has set a target to bring inflation to around 2%. Bringing down the unemployment rate is another issue that the Fed is determined to achieve. The FOMC reviews the financial condition of the country to achieve this target. Unemployment claims have increased from 225k to 228k.

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There is a possibility of a global recession hitting big countries with high inflation, warns the IEA. Investors must remain cautious about the EUR/GBP pair if it continues its trend below the 0.8670 level.

 

 

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