Energy Crisis Will See Euro Rise Further Versus Pound, MUFG Says

Poised for its worst month versus the euro in more than a year, the British pound risks sliding further, partly because Europe is in a better position to deal with soaring energy prices.

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Poised for its worst month versus the euro in more than a year, the British pound risks sliding further, partly because Europe is in a better position to deal with soaring energy prices. 

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That’s the view of Derek Halpenny, head of European global markets research at MUFG Bank Ltd., who sees the single currency rising to as high as 0.8800 per pound in coming weeks. That would be the highest level since February 2021, according to data compiled by Bloomberg.  

The euro has pushed 2.2% higher versus the pound this month as of Tuesday, even as both currencies have sold off against the US dollar.

Halpenny sees further upside for the euro, amid uncertainty over whether Conservative Party leadership candidates Liz Truss and Rishi Sunak can offer sufficient policies to shield the UK economy and support families amid a cost of living crisis. That comes as the European Union is preparing to intervene in the short term to dampen soaring power costs. 

Storage sites in the region are filling fast, bringing some relief and raising the chances Europe will get through the winter with ample supply. Britain lacks gas storage facilities, after a key space was shuttered in 2017 to reduce costs. 

Combined with a looming energy crisis, the prospect of a record European Central Bank rate increase next month could also propel the euro higher against the pound, Halpenny added, given growing speculation that the central bank may match the Federal Reserve’s tightening campaign.