GBP/EUR: Pound Heads Higher As EU To Mull Over Brexit Extension
  • Pound (GBP) falls after two days of gains
  • GBP awaits details on the energy support
  • Euro (EUR) rises after GDP is upwardly revised
  • ECB rate decision is due tomorrow

The Pound Euro (GBP/EUR) exchange rate is heading lower on Wednesday, snapping a two-day winning streak. The pair rose +0.26% yesterday, settling at €1.1623, after trading in a range between €1.1593 – €1.1782 across the week. At 10:45 UTC, GBP/EUR trades -0.18% at €1.1602.

The pound is under pressure as investors weigh up new Prime Minister Liz Truss’s draft energy support plan. Truss plans to freeze energy bills in a plan set to cost over £100 billion, more than the government’s COVID furlough scheme.

Details on the plan are still light, with a formal announcement expected by the end of the week. What is known is that bills are expected to be frozen at £2500 per year until 2024. While the government hasn’t said how it would pay for the plan, massive government borrowing is likely to do the heavy lifting.

In the short term, the move does bring stability to the economic outlook and will also mean that peak inflation is now likely to be this year at around 11% rather than next year at over 13%.

Today attention will be on BoE governor Andrew Bailey as he appears before the Treasury Select committee to defend the central bank’s monetary policy decisions. His words will be closely monitored before the BoE rate decision next week.

The euro is pushing higher after upbeat data for the region. The eurozone economy grew faster than expected in the second quarter. The final Eurozone GDP reading was revised higher to 0.8% quarter on quarter, up from a 0.6% rise. On an annual basis, GDP rose 4.1% in Q2, up from the previous reading of 3.9%.

There is no more high-impacting eurozone data today. Attention will turn to the ECB rate decision tomorrow, where the central bank is expected to raise interest rates by 50 or 75 basis points. A hawkish ECB could lift the euro higher.