Surprise Rise in UK Unemployment Drags Down Pound Sterling Exchange Rate Forecasts Today

Pound to Euro (GBP/EUR) Exchange Rate – Hopes of Softer Brexit and Single Market Access Boost Sterling

A news report from Business Insider claiming that the European Parliament is drawing up plans to grant the UK ‘privileged’ access to the single market after Brexit prompted the Pound to rally sharply on Tuesday.

If true, this could be seen to represent a significant softening in the EU’s approach to Brexit negotiations, encouraging hopes that a less severe divorce agreement is still on the table.

However, while some government ministers continue to call for a ‘clean break’ with the EU, a significant degree of Brexit-based uncertainty remains.

As the next round of negotiations draws closer, GBP exchange rates look vulnerable to fresh downside pressure, with any particular sense of market confidence unlikely to hold up for long.

Pound to US Dollar (GBP/USD) Exchange Rate – Surprise Uptick in Unemployment Weighs on Sterling

UK weekly earnings excluding bonuses picked up to 2.5% in the three months to December, however this piece of positive news has not been enough to shore up Sterling (GBP).

The figure may represent an improvement in wage growth, but it is still significantly lower than domestic inflation, meaning the squeeze on household finances seems set to persist.

Investors were also concerned by a surprise uptick in the unemployment rate, which suggests that the UK labour market is running out of steam.

All in all this has dampened the prospects of there being an imminent Bank of England (BoE) interest rate hike.

Looking ahead to tomorrow, pound sentiment is unlikely to improve significantly when details of the fourth quarter UK gross domestic product (GDP) are published, with economists forecasting a lacklustre growth rate.

US Dollar to Pound (USD/GBP) Exchange Rate – Signs of Rising US Inflation Firm up Fed Rate Hike Expectations

As the latest US consumer, import and export price indexes all surprised to the upside, the US Dollar (USD) has once again received a boost.

With signs of a greater build-up in inflationary pressures in the US economy, the odds of a March interest rate hike from the Federal Reserve remained elevated.

This has encouraged investors to pile back into the US Dollar, with market risk appetite falling away in response to fears of a potential US-China trade war.

The impact of tonight’s Federal Open Market Committee (FOMC) meeting minutes could prove limited, however, with an imminent rate hike all-but priced into USD at this stage.

Any signs of increased caution amongst policymakers, though, may weigh heavily on USD exchange rates.

Euro to US Dollar (EUR/USD) Exchange Rate – Slip in Eurozone Consumer Confidence Dents Single Currency

Eurozone economic data took something of a negative turn this week, eroding some of the support for Euro (EUR) exchange rates.

Investors were not impressed when the Eurozone consumer confidence index slumped sharply from 1.0 to just 0.1 in February, undermining optimism in the outlook for the bloc.

A weaker-than-expected raft of Eurozone manufacturing and services PMIs added to the bearishness of Euro traders, raising fears the currency union has started to lose some of its momentum in the first quarter of 2018.

Confirmation that the Eurozone consumer price index dipped in January may exacerbate the softness of EUR exchange rates further, giving the European Central Bank (ECB) more incentive to leave monetary policy on hold for longer.

Hannah Wilson

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