Pound / Euro Rate Helped Back Onto Feet by Gas for Roubles Ruse
- Written by: James Skinner
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- GBP/EUR finding feet sas EUR/USD rally unwinds
- With EU gas supply vulnerability weighing on EUR
- But Kremlin’s gas for RUB policy a semantic ruse
- EUR gas payments continue with gas still flowing
- GBP/EUR holds 1.1740 but upside may be limited
Image © Adobe Images
The Pound to Euro rate was steadier on its feet in the final session of the week after market concerns about European gas supplies weighed on the single currency and helped lift Sterling further off its earlier lows.
Pound Sterling had tested a major level of technical support on the charts after slipping to a new 2022 low of 1.1740 on Thursday before being lifted when a three-day rally by the single currency began to reverse late in the session and following an important announcement from the Kremlin.
GBP/EUR remained on a firmer footing Friday as the European single currency continued to unwind the earlier move in a setback that was encouraged by market concerns about the Kremlin’s purported threat to Europe’s gas supplies.
“The war in Ukraine continues to cast a long shadow over the EUR even though the ceasefire negotiations between Ukraine and Russia continue,” says Alexandre Dolci, a strategist at Credit Agricole CIB.
Above: Pound to Euro rate shown at hourly intervals and alongside EUR/USD.
“Indeed, repeated threats by Russian President Vladimir Putin in recent days that gas exports could be halted unless they are settled in RUB starting from today have fuelled gas market volatility,” Dolci and colleagues said on Friday.
Sterling’s rebound was helped late on Thursday and on Friday by widespread claims that Europe’s gas supplies from Russia would be terminated unless customers from “unfriendly countries” paid for them using Roubles instead of Euros or U.S. Dollars.
This was after a decree signed by President Vladimir Putin on Thursday was misrepresented by Moscow and poorly understood in the market.
“The Russian merchant bank exchanges the euros into ruble. And then the amount is transferred from the ruble denominated accounts of the European gas importer to the Russian gas supplier,” says Ulrich Leuchtmann, head of FX research at Commerzbank.
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“All those comments according to which the West’s sanction rules would be undermined have hopefully vanished into thin air as a result,” Leuchtmann and colleagues also said in a Friday market commentary.
The Kremlin had attempted to enlist European governments in a practice that would undermine their own sanctions relating to Russia’s invasion of Ukraine but was rebuffed and has, since then, attempted to semantically obscure its reluctance to do what the market had feared it would.
The implication for the Sterling-Euro rate is that it could struggle to extend its recovery much further from Friday’s levels if market concerns about a possible recession-inducing energy supply crunch recede over the coming days.
“The details of the decree have helped allay fears and this announcement may well be more for a public audience in Russia rather than a dramatic change,” says Derek Halpenny, head of research, global markets EMEA and international securities at MUFG.
Above: Pound to Euro exchange rate shown at daily intervals with Fibonacci retracements of April 2021 uptrend indicating various areas of technical support for Sterling, and shown alongside EUR/USD. Click image for closer inspection.
