GBP/EUR: Pound Hovers Around 6 Month high
  • Pound (GBP) rises for a second day despite PM’s troubles
  • PSNB was less than forecast in December
  • Euro (EUR) fell despite encouraging IFO business sentiment data
  • EUR could be driven by the USD on Fed Day

The Pound Euro (GBP/EUR) exchange rate is heading higher for a second straight day. The pair gained 0.3% in the previous session, settling at €1.1944 after having risen as much as €1.1967 earlier in the session. At 05:45 UTC, GBP/EUR trades +0.07% at €1.1953.

The pound pushed higher on Tuesday after data revealed that government borrowing fell by more than expected in December. Public sector net borrowing dropped to £16.8 billion in December, less than the £18 billion that analysts were expecting, thanks to higher than expected tax receipts. This was also down £7.6 billion from December last year as the economy recovers from the pandemic hit. However, this was still the fourth highest December borrowing on record.

Whilst borrowing was down, interest payments were up due to sky high inflation. UK inflation has surged to 3-decade highs on soaring energy prices.

There is no high impacting UK data due for release today. Instead, investors will remain focused on developments at Downing Street, as Ethics Chief Sue Grey is expected to release her report on “party gate” imminently. Should the report paint Boris Johnson in a bad light, the PM could find himself out of a job.

Risk sentiment surrounding the Russia – Ukraine conflict could also drive the pound lower should tensions continue to rise.

The Euro fell in the previous session, thanks in part to a stronger US Dollar ahead of the Fed announcement later today.

The euro shrugged off encouraging German IFO data. German business sentiment has brightened at the start of 2022 despite he ongoing COVID crisis, rising inflation and supply chain bottlenecks. The IFO business climate rose to 95.7 in January, up from 94.8 in December. This was the first increase in six months.

Looking ahead there is no high impacting Eurozone economic data. Movement in the US Dollar could drive the euro as the Fed announce their interest rate decision.