GBP/EUR Accelerates as UK Wage Growth Beats Expectations

GBP/EUR Exchange Rate Buoyed by UK Employment Report

Updated: The Pound Sterling to Euro (GBP/EUR) exchange rate is trending higher this morning, with the pairing ticking up to €1.1236 following the release of the UK’s latest employment report.

This saw the ONS report that unemployment held at 3.8% in April, a 44-year low as employment rose by 32,000 to a record higher of 32.75 million.

However the uptick in GBP was mostly driven by the accompanying earning’s figures as wage growth unexpectedly ticked up from 3.3% to 3.4% over the same period.

GBP/EUR Exchange Rate Sinks on UK Growth Warning

UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate touched its worst levels since mid-January this afternoon as concerns over the UK economy grow.

Adding to the pressure from this morning’s GDP figures were the latest UK growth forecast from NIESR, with the think tank warning that the economy may shrink by -0.2% in the second quarter.

Adding to this pressure is the heightened political uncertainty in the UK as a number of Conservative leadership hopefuls launched their campaigns to replace Theresa May, with some pledging to ‘use all the tools available to them’ to ensure the UK leaves the EU in October, even if this includes sidelining Parliament.

 

GBP/EUR Exchange Rate Subdued Following Weak UK GDP Figures

The Pound Sterling to Euro (GBP/EUR) exchange rate is stuck trading in a narrow range this morning after markets were left disappointed by the UK’s latest GDP figures.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1230, leaving the pairing virtually unchanged from this morning’s opening rate.

Slump in GDP Weighs on Pound Sterling (GBP) Exchange Rates

The Pound (GBP) is treading water against the Euro (EUR) this morning as GBP investors were left disheartened by the UK’s latest GDP figures.

According to data published by the Office for National Statistics (ONS) UK GDP contracted -0.4% in April, following on from a 0.1% fall in March.

This was the largest monthly fall in growth since March 2016 and was attributed to a collapse in car production as a result of heightened Brexit uncertainty.

Rob Kent-Smith, Head of GDP at the ONS, said:

‘GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns.’

Further limiting the appeal of Pound Sterling (GBP) exchange rates this morning were the UK’s accompanying industrial production figures, with the ONS reporting that factory output plummeting from 0.7% to -2.7% at the start of the second quarter.

Euro (EUR) Exchange Rates Softened by ECB Interest Rate Speculation

At the same time, Euro (EUR) exchange rates are also struggling to find momentum at the start of this week’s session amid reports that the European Central Bank (ECB) is flirting with the idea of lowering interest rates.

Despite the ECB’s policy statement last week indicating that the bank would leave rates ‘at their present levels’ throughout the first half of 2020, sources from within the ECB suggest that ‘a rate cut is warranted’ if inflation and growth continue to slow.

Reuters reports that the main purpose of a rate cut would be to counter the Euro’s current strength, with the source reportedly listing ‘exchange rates’ five times after offering to provide five reasons for a rate cut.

GBP/EUR Exchange Rate Forecast: Slump in UK Wage Growth to Drag on Sterling?

Looking ahead, we can expect to see the Pound Euro (GBP/EUR) exchange rate remain under pressure tomorrow with the publication of the UK’s latest employment report.

With the UK’s unemployment rate expected to have held steady at a 44-year low, the focus will instead be on the accompanying earnings figures.

This is likely to send Sterling into retreat as economists forecast that wage growth will have fallen back to 3% – its lowest levels since last August – potentially limiting the Bank of England’s (BoE) intention to raise interest rates.

Meanwhile, the only Eurozone data of note this week will be bloc’s industrial production figures on Thursday, with another contraction in production likely to give a boost to the Pound to Euro (GBP/EUR) exchange rate.

Matthew Andrews

Contact Matthew Andrews


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