Update: GBP/EUR Extends Losses on Fears UK Employment has Peaked
The losses in the Pound Euro (GBP/EUR) exchange rate this morning appear to have been extended following suggestions that the UK’s jobs market could face further turbulence.
Ian Brinkley at the CIPD suggested this morning’s employment figures may be evidence that the UK’s labour market ‘running out of steam’, leading to a further dip in the GBP exchange rate.
While he tempered his comments by adding that the rise in unemployment may prove to be a ‘one-off’, it was unable to limit the impact on Sterling as spooked investors drove GBP/EUR lower.
Lacklustre Employment Scuppers Rate Hike Hopes, Weakening GBP/EUR
The Pound to Euro (GBP/EUR) exchange rate is taking a pummeling this morning as investors react to the UK’s latest employment figures.
At the time of writing GBP/EUR is down 0.3%, with the pairing having relinquished much of the gains made on Tuesday.
Pound (GBP) Tumbles as Rising Unemployment Tempers Calls for BoE Rate Hike
The Pound slumped against the Euro this morning as the UK published its latest employment statistics.
The Office for National Statistics (ONS) reported that the jobless rate in the UK rose from 4.3% to 4.4% in December, the first rise in unemployment in almost two years.
This saw the number of Britons out work rise by 46,000 to 1.47 million at the end of last year.
The unexpected rise in unemployment has led many analysts to suggest that the Bank of England (BoE) may delay any decision to raise interest rates over the coming months.
Costas Milas, Professor of Finance at the University of Liverpool said:
‘Today’s unemployment rate is potentially a turning point on the thinking of MPC members.’
‘It is more likely than not that they will want to see a reversal of this rise in unemployment in the next few months before contemplating another interest rate hike in May 2018.’
Meanwhile wage growth (excluding bonuses) was shown to have risen in December, but proved to do little to slow GBP’s descent this morning given the revised forecasts for a May rate hike.
Euro’s (EUR) Gains Trimmed by Slowing Private Sector Activity
At the same time while the Euro has been able to advance against the Pound this morning, it finds itself a little more subdued against its other peers following the release of the latest Eurozone PMI stats.
According to data compiled by IHS Markit the composite reading of both the manufacturing and service sectors saw activity fall more than expected in February.
The combined index tumbled from a near 12-year high of 58.8 to 57.5 this month, a much larger slide than the more modest dip to 58.5 that had been forecast.
Despite the slowdown analysts remain upbeat about the release, as they suggest that growth in the Eurozone’s private sector is still on track for its best quarter since 2006.
Chris Williamson, Chief Business Economist at IHS Markit said:
‘February saw the Eurozone’s growth spurt lose a little momentum, but the rate of expansion remains impressive, putting the region on course for its best quarter for almost 12 years.’
Williamson also forecasts that the current pace of activity indicates that Eurozone GDP will jump to 0.9% in the first quarter of 2018.
GBP/EUR Exchange Rate Forecast: UK Business Investment to Remain Unchanged?
Looking ahead to the second half of the week, the GBP/EUR exchange rate may continue to struggle following the release of the UK’s latest Business Investment figures.
Economists forecast Thursday’s data will show that domestic investment growth will have remained unchanged at 0.5% in the fourth quarter, possibly limiting movement in the Pound.
Meanwhile the release of the minutes from the ECB’s latest policy meeting could drive the Euro higher tomorrow, should they suggest that the bank is close to discussing the possibility of a rate hike this year.