Pound Euro Exchange Rate Rises Despite Four-Year High UK Unemployment

Pound (GBP) Edges Higher on Brexit Hopes as UK Unemployment Rises

Sterling edged higher today despite UK unemployment reaching a four-year high. The pairing is currently fluctuating around €1.124.

In the three months to September, employment rose by 243 thousand in the third quarter. This was compounded by a record rise in redundancies.

Jonathan Athow, the deputy national statistician for economic statistics at the ONS, commented on the data:

‘We’re seeing a continuation of a weakening of the labour market, fewer people on the payrolls and fewer people employed overall. That is now passing through to increasing unemployment altogether.

‘We might see furlough creep up again and that might mean we don’t see any further big increases in redundancies or unemployment, but it’s way too early to tell what will happen.’

Meanwhile, Brexit remains in focus following a huge defeat in the House of Lords for Prime Minister Boris Johnson’s internal market bill.

Nevertheless, Johnson aims to press on with Brexit despite the setback.

Downing Street’s spokesman said:

‘Any Lords amendments will be considered when they return to the Commons but we do consider these clauses to be a vital safety net.’

However, following US Democrat Joe Biden being the new President-elect, GBP investors are more hopeful that the UK and the EU will concede on a trade agreement in the weeks ahead.

Euro (EUR) Falls as Europe’s Covid-19 Situation Could Lead to Double-Dip Recession

The Euro (EUR) fell today as Europe continues to battle widespread Covid-19 infections, likely plunging the Eurozone’s economy into a double-dip recession in the fourth quarter.

Consequently, demand for the single currency has slipped, owing to growing concerns for Germany’s economy – the largest in the Eurozone – as well as Europe’s coronavirus situation.

Nonetheless, EUR investors are now more hopefully following recent positive news regarding a Covid-19 vaccine.

This news has inevitably weighed on safe-haven demand.

Investors are now more confident to invest in riskier assets as a Covid-19 vaccine offers a glimmer of hope for the global economy.

In Eurozone economic news,  today saw the release of the latest ZEW Survey of Economic Sentiment for November.

The gauge fell well below forecasts, shrinking from 52.3 to 32.8.

ZEW commented on the data:

‘[F]inancial experts are concerned about the economic impact of the second COVID-19 wave and what this will entail.’

‘There is also the additional worry that the German economy could head back into recession.’

GBP/EUR Outlook: Could Hopes of a Brexit Trade Agreement Boost Sterling?

Euro (EUR) investors will be looking ahead to tomorrow’s speech from the European Central Bank’s (ECB) Governor Christine Lagarde.

Any downbeat comments about the Eurozone’s economic performance would prove EUR-negative.

Meanwhile, European markets will be monitoring Europe’s Covid-19 situation.

If the Covid-19 infection rate continues to increase, then a double-dip recession would appear more likely and drag down the single currency.

Pound (GBP) investors will be looking to Brexit updates over the next few weeks.

The GBP/EUR exchange rate could continue to head higher this week. If it looks increasingly likely that Downing Street could secure a trade agreement, then Sterling would rise.

David Moore

Contact David Moore