Steady UK Wage Growth Encourages Pound Sterling Euro (GBP/EUR) Exchange Rate Gains
As UK average weekly earnings including bonuses unexpectedly held steady at 3.2% in the three months to November the Pound Sterling to Euro (GBP/EUR) exchange rate strengthened.
With a steady level of earnings growth likely to translate into higher levels of consumer confidence and spending this stronger showing encouraged demand for Pound Sterling (GBP).
Although the wage data is unlikely to alter the current policy outlook of the Bank of England (BoE), with an imminent interest rate cut still expected, GBP exchange rates still pushed higher this morning.
A smaller-than-expected uptick in December’s unemployment claims also offered encouragement to the Pound, suggesting that the underlying performance of the UK economy is not as weak as previously feared.
Strengthening German Economic Confidence Fails to Lift Euro Demand
Although the German ZEW economic sentiment index saw a surge in January, meanwhile, this failed to shore up the Euro (EUR).
While the index jumped from 10.7 to 26.7 at the start of the year the appeal of the single currency remained generally muted.
With global trade tensions looking set to persist for some months yet to come hopes of stronger German growth still seem limited, especially in the wake of the Bundesbank’s economic warning.
As long as US belligerence on trade continues to weigh on global growth the Euro could struggle to return to a stronger footing.
Uptick in UK Business Optimism Forecast to Boost GBP/EUR Exchange Rate
Further gains could be in store for the GBP/EUR exchange rate on Wednesday with the release of the first quarter CBI business optimism index.
Forecasts point towards a modest improvement in the optimism index, with markets expecting to see a rebound from -44 to -28 on the quarter.
Even if the index remains firmly in negative territory any significant improvement on the fourth quarter’s dismal reading may encourage the Pound to push higher across the board.
Evidence that business sentiment bounced back in the wake of December’s general election result could encourage a greater sense of confidence in the wider economic outlook.
On the other hand, if businesses fail to show increased signs of optimism in the face of ongoing Brexit-based uncertainty this could leave GBP exchange rates exposed to renewed selling pressure.
Euro Exchange Rates Unlikely to Find Support on Lack of ECB Action
Support for the Euro is unlikely to pick up on the back of Thursday’s European Central Bank (ECB) policy announcement, with no change in monetary policy expected.
As markets see the ECB remaining on hold for the foreseeable future the potential for any EUR exchange rate gains appears limited.
Unless policymakers express a greater sense of confidence in the economic outlook the single currency could see little change in the near term.
Greater signs of division within the central bank may provoke some market jitters, though, as markets weigh up the odds of the ECB tightening monetary policy in the years ahead.