Pound Euro Exchange Rate Jumps on UK Economic Optimism

Pound Euro Exchange Rate Rebounds from Lacklustre Data

The Pound Euro (GBP/EUR) exchange rate initially dropped this morning as mixed jobs data did little to support Sterling.

However, the pair is now trading at around €1.174, up from today’s opening level of €1.170, driven by hawkish comments from Bank of England (BoE) policymaker Michael Saunders.

Pound (GBP) Spikes despite Mixed Jobs Data

The Pound (GBP) was initially muted this morning after UK employment reports gave a mixed picture of the country’s labour market.

While the number of people claiming unemployment benefits dropped by a whopping 114,800 in June, this was still just below estimates of 120,000.

Employment figures for April and May also missed market forecasts, with the employment rate unexpectedly rising from 4.7% to 4.8%.

The figures show that the UK labour market is recovering, though there is still progress to be made.

Meanwhile, average earnings in May printed at 7.3%, beating predictions of 7.1%. However, the figure has been distorted by the loss of jobs among lower-wage workers, who were hit hard by coronavirus.

In addition, the rise in wages also needs to be seen in the context of the pandemic. In a blog post this morning, deputy national statistician Jonathan Athow wrote:

‘In spring-summer 2020, many workers were on furlough or had their hours reduced. This meant that people saw their earnings fall, pushing down weekly wages. This year, with fewer people on furlough and hours returning closer to normal, weekly wages are higher.’

However, the Pound Euro exchange rate has since soared by half a cent, driven by hawkish comments from the BoE’s Michael Saunders.

In a speech this morning, Saunders said:

‘In my view, if activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly (and these conditions are important), then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis.’

Saunders is the second BoE policymaker to strike a more hawkish tone following the UK’s surge in inflation yesterday, adding his voice to that of BoE Deputy Governor Sir Dave Ramsden.

While BoE Governor Andrew Bailey dismissed taper talk yesterday, GBP investors are excited by the prospect of the central bank tightening monetary policy sooner than expected, which has given the Pound a boost.

Euro (EUR) Buoyed by Dampened USD Demand

Meanwhile the Euro (EUR) initially trended slightly higher this morning, supported by its negative correlation with a softening US Dollar (USD) following dovish remarks from Federal Reserve Chair Jerome Powell yesterday.

However, a lack of data and ongoing concerns over the spread of the Delta variant in Europe have left the Euro open to losses against the Pound.

Rising coronavirus cases have been weighing on the single currency in recent weeks, with some countries imposing new restrictions and travel bans, and many analysts worried about the impact on the European tourism industry.

Pound Euro Exchange Rate Forecast: GBP/EUR to Climb Higher on US Jobs Data?

The Pound Euro exchange rate rebounded late this morning, but will Sterling be able to hold onto its gains?

This afternoon’s jobs reports from the US could benefit GBP/EUR. With the data expected to be positive, USD could firm somewhat, which may place pressure on the Euro.

The single currency could regain some ground tomorrow morning, however, as the Eurozone’s latest trade report is expected to reveal a widening surplus.

Inflation in the block is predicted to ease slightly from 2% to 1.9%, but will the reading overshoot like the recent UK and US figures?