EURGBP Surges as UK Reels from Energy Price Crisis

The EURGBP exchange rate was higher this week with the price surging back towards the 0.8600 resistance level.

The UK economy seems to get back on its feet and gets slammed by another crisis as data from the OECD showing the UK economy rising fastest in the developed world, was met by the latest energy price problems and the pound is being hit again.

The EUR to GBP rate trades at the 0.8585 level and markets are on “risk-off” mode amidst the Evergrande conglomerate bankruptcy fears in China.

Evergrande fears hit stocks but airlines are buoyed

The FTSE 100 slid on Monday as markets continue to be rocked by the Evergrande default fears. But the market was helped by a recovery in travel stocks.

British Airways owner IAG was higher by more than 10% after it was confirmed that the White House will ease travel restrictions to US from Europe in November. That added to positive sentiment over the simplification of the UK’s traffic light system.

Michael Hewson, analyst at CMC Markets UK, said: “With Chinese mainland markets closed today, along with Japanese markets, the Evergrande inspired selloff in the Hang Seng, which hit thirteen-month lows, has bled into today’s European session with big falls for the FTSE 100, and the DAX, with both hitting a two-month low.

“The biggest fallers today have been the usual suspects of basic resources and financials as concerns about the economic outlook and falling yields drag on both.

“Its not all doom and gloom however with airlines starting to see a little less turbulence, and gain altitude, in the wake of the recent announcement on the simplifying of international travel and quarantine restrictions by the UK government on Friday.”

Pound sterling rocked by UK energy crisis

British ministers are looking at fresh measures to protect consumers from a “cost of living crisis” amid the latest energy crisis, the Business Secretary has suggested.

Kwasi Kwarteng assured citizens that there was “absolutely no question of the lights going out” this winter as the UK has sufficient capacity to meet demand as some smaller energy suppliers go bust. A fire at a key import station in Kent has squeezed prices higher in the last few days with 1GW of supply offline until March.

The pressure on consumers is hard enough with the latest surge in inflation and the government is looking at a Northern Rock-style bailout of energy firms with the government taking stakes in the firms.

The largest suppliers are asking the government for support to handle potentially millions of customers from failing companies and may see the creation of a “Northern Rock-style bad bank”.

The situation could also dent the UK’s current account deficit with Deutsche Bank saying:

“This would represent a moderate widening of the UK’s current account deficit, which stands at just over 3% of GDP over the past four quarters. To be sure, our estimate likely represents an upper bound, but at the least it suggests that the gas price increase will be worth monitoring over coming weeks”.

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