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GBP/EUR Wavers on UK Public Finance Fears and Russia Worries
The Pound Euro (GBP/EUR) exchange rate wavered on Thursday as UK borrowing worries and Russia-Ukraine tensions pressured both currencies.At the time of writing, GBP/EUR traded at €1.2011, having wavered in a narrow range.
Pound (GBP) Pressured by Government Borrowing Figures
The Pound (GBP) fell on Thursday as higher-than-forecast UK government borrowing raised concerns about the state of the British public purse.
New data from the Office for National Statistics (ONS) showed that public sector borrowing leapt to £17.4bn in October, rather than the much lower £12.3bn City economists had expected.
Jessica Barnaby, Deputy Director for Public Sector Finances at the ONS, commented:‘This month’s borrowing was the second highest October figure since monthly records began in January 1993.
‘Despite the cut in the main rates of National Insurance earlier in 2024, total receipts rose on last year.
However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall.’
The figures were a blow to Chancellor Rachel Reeves, highlighting how little fiscal headroom she has despite huge tax hikes in her recent Autumn Budget.
With spending and debt servicing costs draining the government coffers, there are some fears that Reeves will need to make more unpopular choices in the spring.
Euro (EUR) Slides amid Russia Fears
Meanwhile, the Euro (EUR) faced challenges of its own on Thursday as an escalation in the Russia-Ukraine war put the common currency on the back foot.
Tensions between Russia and the West flared as Ukraine used US-supplied long-range missiles to strike inside Russian territory, after US President Joe Biden authorised the move.
Ukraine then claimed on Thursday that Russia had fired an intercontinental ballistic missile at Ukraine for the first time since the war began.
While these latest developments weighed on the Euro, EUR’s strong negative correlation with a rising US Dollar (USD) also piled pressure on the single currency.
As a result, the Euro softened very slightly against the Pound.
GBP/EUR Exchange Rate Forecast: Upcoming Data to See Pairing Fluctuate?
Friday could bring notable movement in the Pound Euro pairing amid a flurry of UK and Eurozone data.
At the start of the European session, the UK’s latest retail sales data is due out.
Economists expect to see a 0.3% decline in British sales growth last month, which could weigh on the Pound.
Attention then turns to the preliminary PMIs, with UK private sector activity expected to have held steady at a relatively slow pace in November.
This may leave Sterling without much support.
The Eurozone PMIs are also due out on Friday.
Business activity in the bloc is also expected to remain rather sluggish this month, so EUR may not be able to press its advantage against GBP.
Any surprise results in the PMIs could drive volatility.
The common currency could also be influenced by a speech from European Central Bank (ECB) President Christine Lagarde on Friday morning.
If the ECB chief expresses concern about the fragility of the Eurozone economy, or hints at more interest rate cuts to come, then the Euro could stumble.
This content was originally published on ExchangeRates.org.uk