- Pound (GBP) is rising after strong gains last week
- UK Chancellor warns over inflationary impact of higher energy prices
- Euro (EUR) is falling as sentiment worsens
- Oil rises over $100 per barrel
The Pound-Euro (GBP/EUR) exchange rate is rising on Monday after strong gains last week. The pair rose 1.1% in the previous week, settling on Friday at €1.1544. It traded between €1.1378 and €1.1553. At 17:30 UTC on Monday, GBP/EUR trades 0.10% higher at €1.1556.
The pound edged higher at the start of the new week, tracking gains in gilt yields amid rising energy prices.
Oil pushed above $100 a barrel, and gas prices remain elevated amid supply worries. This comes as the UK has very low gas storage levels, raising concerns further about the UK’s energy position.
High oil and energy prices mean the Bank of England is less likely to cut interest rates anytime soon. Today, Chancellor Rachel Reeves warned that higher energy prices would mean higher inflation levels, which could become a fresh cost-of-living crisis.
Just over a week ago, the market was confident that the Bank of England would cut rates by 25 basis points in the March meeting. This has now been almost completely priced out, with the market expecting the Bank of England to hike rates by the end of the year.
The euro is under pressure, weighed down by concerns over energy and by the latest investor confidence data.
The latest eurozone Sentix investor confidence figures dropped to -3.1 in March, reversing from a previous 4.2 and coming in well below the 5 level expected.
This was also the first negative reading in five months and signals a significant downturn in economic expectations among investors, reflecting worries over the Middle East conflict and, more particularly, the rise in energy prices.
The surge in TTF gas has hit Europe hard in the past. Prices have risen to €60/MWh, marking the highest since January 2023. However, this is still a far cry from the €346/MWh highs seen when the Russia-Ukraine conflict started.
