The EUR/GBP trades at 0.8432 on October 19, 2021. It slumped below key support at 0.8450. The energy crisis and inflation play havoc on the shared currency.
EUR/GBP Slumps Below 0.8450 Levels in October 2021
Table of Contents
EUR/GBP broke through the support area at 0.8484 and slipped to 0.8450 levels in August 2021. Once again, the EUR/GBP breached this level on October 18, 2021. It is trading at levels last seen in February 2020, before the pandemic began.
As countries are recovering from the pandemic effects, the need for gas is on the increase. Demand for gas is much higher than the supply, creating an energy crisis in the sector. The International Energy Agency (IEA) states that gas demand rebounded 3.6%, in 2021, across the globe. Countries need to step up gas production to power factories and heat homes.
Rising Energy Costs
The energy crisis in the EU and the UK hits every sector in the two major regions. The EUR/GBP pair is under pressure as it spirals downwards, leaving key support regions. Analysts predict that the energy problem will get worse in the days to come.
Rising energy costs will hit consumers. It will lead to inflation, as prices of food and goods and supplies will also increase. The energy crisis will hit every sphere of the economy. Public health, the environment, and the economy depend on energy. Energy is necessary for transport, household cooking, and electricity.
Every household depends on energy availability, and it triggers the prices of other goods and services.
The natural gas benchmark, the Dutch TTB, is nearing record-high levels. It is trading at 73.150 euros per megawatt-hour. There are many factories affected by the power crisis.
Energy Sector in Europe
European countries are facing a power crisis. Energy prices are soaring, and it would lead to more insolvency, says the founder of Utilita Energy, Bill Bullen. Bulb, the sixth-largest supplier in the UK, seeks a bailout. Four other competitors in the energy sector ceased trading, reports the BBC.
In Europe, the Spanish government announced a decree to bring a cap on retail energy prices. However, the EU government fears that other EU member states may imitate Spain.
The EU has various climate actions planned for the global talks to take place in November. If EU member states prefer cheap energy to green transition, it will affect their leadership credibility in this space, fear EU officials.
Fertilizers and seed companies need a lot of energy for production purposes. Their electricity requirements are high, and the increase in costs is hurting such companies. Gas prices are spiking higher.
Europe depends on imports from Norway and Russia for gas. In 2021, gas prices in Europe saw a sharp surge of 600% so far.
Inflation in the EU is largely transitory, says ECB President Christine Lagarde. The ECB pays close attention to factors that drive prices, says Lagarde. Inflation is bringing up prices of commodities and is affecting ordinary household expenses.
Energy Crisis in the UK Power System
There is a high shortage of gasoline in the gas stations in the UK.
The British government may bail out energy suppliers, say experts. Consumers need protection from power disruptions, and energy suppliers need help during this time of crisis. Surging gas prices are crushing small energy providers in the United Kingdom.
Prime Minister Boris Johnson is under heavy pressure with the power shortage. He has to take steps to prevent factory closures. The employment rate will come down if such closures occur, say analysts.
Bank of England Governor Andrew Bailey says that the BoE has to act to curb inflation. There is mounting pressure on the EUR/GBP pair in the foreign exchange market.
The tension about the Northern Ireland protocol between France and the UK continues unabated. Talks between the two countries are not conclusive, keeping the problem unresolved, adding pressure on the Euro to British Pound currency in the forex market.
Energy Crisis Becomes a Global Phenomenon
China is the largest importer of gas. It is consuming more gas to cut carbon emissions and to power its factories. The increased demand from China is causing a power shortage in Europe and the UK.
Russia is the chief exporter of gas to the European countries. The US warns Russia not to exploit the situation, where country’s face gas shortage. Russia has to provide natural gas consistently and without hiking rates, say authorities.
The US may produce more from shale drilling to counter the expanding need for gas.
Russia is the major supplier of gas to the EU, and it takes advantage of the situation. The Nord Stream 2 by France is an underwater gas pipeline project that needs approval from European regulators. President Vladimir Putin says that Russia will step up exports to the EU once they gain the underwater pipeline approval.
The OPEC+ countries agreed to cut oil production during the pandemic. Russia is a part of the OPEC+ countries, and it cut down oil production, with lower demand for crude oil. Simultaneously, it also cut down gas production.
The winter season looms ahead, and the energy demand will see rise meteorically in the months ahead. The need for gas and power will rise higher in the cold months. Disruptions will hit many countries, say experts.