The Pound to Euro (GBP/EUR) exchange rate continued falling on Wednesday as days of political uncertainty and underwhelming UK ecostats built up pressure on the Pound. Meanwhile, despite a cautious European Central Bank (ECB) outlook, the Euro has been performing decently in recent sessions.
GBP EUR began the week trending at around 1.1307 and has since lost over a cent in value. The pair hit its worst level in around three weeks on Wednesday morning, 1.1099.
Pound Sterling Exchange Rate Slumps as UK Employment Falls
Despite the UK unemployment level remaining at the same level as expected, 4.3%, in the three months into September, the Pound was sold on Wednesday as the other details of the job market report concerned investors.
Investors ultimately overlooked a slightly better-than-expected wages including bonuses report. The figure was forecast to slip from 2.3% to 2.1% but instead only dropped to 2.2%. The figure excluding wages also came in at 2.2% as expected.
The most notable detail from September’s job report though, was that employment actually dropped for the first time since the August-October 2016 period, with the biggest drop in employment since 2015.
The reason this was not reflected in the key unemployment rate was due to a rise in inactivity in the job market, with many citizens dropping out of the work force.
This figure jumped by 117,000, the fastest rate in almost eight years, in the three months to September. The inactive rate came in at 21.6%.
As employment slipped, some analysts are wondering if the Bank of England (BoE) was too hawkish in raising UK interest rates during its November policy decision.
Overall, the report left investors with little reason to buy the recently weak Pound as it weakened against a sturdy Euro.
Euro (EUR) Exchange Rates Supported by Growth Stats
While the European Central Bank (ECB) continues maintaining long-term caution on monetary policy, investors’ attentions were brought back to the improving health of the Eurozone economy this week following some strong Eurozone growth data.
Tuesday saw the publication of key Q3 Gross Domestic Product (GDP) estimates from Germany, Italy and the Eurozone as a whole.
German and Italian growth projections beat forecasts in all major prints, bolstering hopes that the Eurozone would continue to grow at a strong pace overall for the remainder of 2017.
Analysts believe that this optimism surrounding Eurozone growth and the strength of the single currency will continue too.
Weakness in major rivals like the Pound (GBP) and US Dollar (USD) made the shared currency even more appealing, making it one of the market’s currencies of choice so far this week.
Still, there is some persistent pressure on the Euro too. With the ECB still expected to leave monetary policy frozen until at least September 2018, and Eurozone inflation still showing signs that it will be weaker in 2018, the Euro’s potential for gains is limited.
Pound Euro (GBP/EUR) Exchange Rate Outlook: Could Retail Sales Support Sterling?
Thursday will see the publication of more influential data which could affect Pound to Euro (GBP/EUR) exchange rate trade.
After days of underwhelming UK ecostats and concerning political uncertainty, the Pound could see recover if October’s UK retail sales stats beat expectations.
UK retail sales are forecast to improve slightly from -0.8% to 0.1% month-on-month, but drop from 1.2% to -0.6% year-on-year.
If the yearly figure meets or is even worse than expected, this will worsen concerns that the pay squeeze has had a negative impact on UK consumer activity this year. This would likely lead to GBP/EUR finishing this week lower.
However, stronger than expected retail data would make the UK economy appear more resilient, which would lead to stronger support for the Pound.
Vital Eurozone data will be published on Thursday too, including unemployment stats from France and The Netherlands, as well as October’s Eurozone inflation results.
If Eurozone inflation falls short of expectations, this could stop this week’s Euro rally. Strong inflation data would make it even less likely for GBP/EUR to recover its recent losses however.