Pound Euro (GBP/EUR) Exchange Rate Softens on Furlough Fears
The Pound Euro (GBP/EUR) exchange rate has dropped to a two-week low today, despite some strong jobs data from the UK, as fears of post-furlough redundancies weigh on the Pound (GBP).
Recent GDP and employment data from the Eurozone has supported the Euro (EUR) so far, after both reports showed quarter-on-quarter progress.
Pound (GBP) Down despite Strong Jobs Data
The Pound is struggling today, with GBP investors seemingly unimpressed by the UK’s latest employment data.
Data from the Office for National Statistics (ONS) printed stronger than economists had predicted. The UK’s unemployment rate unexpectedly dropped from 4.8% to 4.7% in June, while average earnings (including bonuses) increased by 8.8% versus the 8.6% forecast.
The ONS data also showed that the number of people in work in the UK jumped by 95,000 in May – above the 75,000 expected. And separate figures from HMRC showed that in July the number of employees on payroll increased by 182,000.
Rishi Sunak, Chancellor of the Exchequer, said:
‘I know there could still be bumps in the road but the data is promising. There are now more employees on payrolls than at any point since March 2020 and the number of people on furlough is the lowest since the scheme launched.’
Yet economists seem divided over how the UK labour market will change in the months ahead. Some economists believe that the latest jobs data could lead the Bank of England (BoE) to hike rates sooner than expected.
Kallum Pickering, senior economist at Berenberg, said:
‘We continue to look for the first rate hike in August 2022. But the strengthening inflation dynamic and strong recovery in domestic demand suggest the risks are tilted towards a hike even sooner than that – perhaps as early as May 2022.’
However, others have raised concerns that once the furlough scheme fully ends next month and pent-up demand begins to subside, unemployment could rise. These fears are what seem to be weighing on the Pound today and offsetting the otherwise positive jobs data.
Euro (EUR) Firms on GDP Growth
Meanwhile, the Euro has been strengthening today, as Eurozone GDP growth and employment figures both improved in the second quarter of this year.
Latest data confirmed that GDP grew in the Euro area by 2% in the second quarter of 2021, recovering from a 0.3% contraction in the first quarter. GDP was boosted by rebounding activity and demand as more of the Eurozone economy reopened and the EU’s vaccination programme accelerated.
This was faster than the 1.6% growth in the US over the same quarter, but slower than the UK’s 4.8%, while the Eurozone’s annual growth rate also beat the US’s, which came in at 13.6% and 12.2%, respectively.
In addition, Eurozone employment grew by 0.5%, compared to a 0.2% drop in the first quarter.
The latest data points to a strong Euro area recovery despite a shaky start to the year, which is in turn cheering EUR investors.
Pound Euro Exchange Rate Forecast: UK CPI in Focus
With no more data due out today, the Pound Euro exchange rate may continue on its current trajectory. Though as markets digest today’s reports and economists continue to analyse them, we may see some additional movement.
GBP investors will be focusing on the UK’s CPI, which is out tomorrow morning. Inflation is expected to ease from 2.5% to 2.3%, but if the latest reading shows that prices continue to rise then this may boost Sterling as it puts more pressure on the BoE to tighten monetary policy.