EUR GBP Surges as Energy Prices Squeeze the UK

The EUR GBP exchange rate soared above the 0.8600 level on Tuesday after another rise in gas prices to record levels squeezed the pound further. The recent highs saw nine firms in the UK failing and the current fuel shortages caused by panic buying are also not helping.

The EUR to GBP rate trades at 0.8630 after also seeing better-than-expected German consumer confidence.

Pound sterling hit by energy shortage fears

The pound sterling slumped to an eight-month low against the euro as the current fuel crisis has investors worried.

Panic buying of petrol and other issues such as a shortage of goods and workers and rising prices could derail the economic recovery. In a sign of further pressure, oil briefly rose above $80 a barrel for the first time in three years, while wholesale gas prices reached new all-time highs.

There are fears that more energy suppliers could get into problems, while the HGV shortage that was blamed for the panic buying and shortages at the pumps.

UK Prime Minister had suggested the problem was easing and had the military on standby to support deliveries. Temporary visas were also being fast-tracked for European HGV drivers.

Johnson said: “What we want to do is to make sure we have all the preparations needed to get through to Christmas and beyond, not just in supply for petrol stations but all parts of the supply chain.”

The pound had been supported a day earlier by comments from the Bank of England governor Andrew Bailey, who said that higher inflation in recent months would force the hand of the central bank with a rate increase sooner than expected.

German consumer confidence hits highest level since April 2020

Germany’s consumer confidence was predicted to rise in October due to an improvement in wages and propensity to consume, according to GfK showed on Tuesday.

The forward-looking indicator rose to +0.3 points from -1.1 in September, which was better than the forecast of a further fall to -1.5.

The consumer climate index has reached its highest level since April 2020 and Rolf Burkl of GfK commented:

“Even if the consumer climate has almost reached its pre-crisis level, it remains to be seen whether we can speak of a fundamental trend reversal”.

“What matters here is how the infection process will develop in the winter months and whether new restrictions will be necessary,” Bürkl added.

The latest figures will give some hope for a German recovery after the country lagged other large European nations in recent months.

Thursday will see the next economic data for the euro versus the pound sterling as a final reading of UK GDP is released, alongside inflation and employment for the German economy. Stronger numbers could hit the pound while it is being affected by the energy issues.

The EUR to GBP failed at the 0.8650 level back in July and will target that level again.

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