Pound Euro (GBP/EUR) Exchange Rate Clings to Modest Gains after Easing off Daily Highs

Pound Euro (GBP/EUR) Exchange Rate Retreats as Markets Digest Data

(Updated 15:20, 12/10/21) The Pound Euro (GBP/EUR) exchange rate rose sharply this morning but eased off today’s highs as we entered the afternoon. The pair is currently trading at €1.1767, up just 0.05% from this morning’s opening rate and below today’s highs of €1.17981.

The initial upside in the Pound (GBP) came courtesy of the UK’s positive employment data, which indicated that the country’s labour market is rebounding strongly from the effects of the pandemic. However, Sterling was unable to sustain today’s upper levels.

One reason for this might be the current cautious market mood, which is weighing more on the Pound than on the Euro (EUR). Earlier today, the International Monetary Fund (IMF) cut its forecast for the global economy this year, as supply chain disruption has stifled growth and driven up inflation.

Sterling may also have retreated from today’s highs as markets fully digested the employment data. While the reports were undoubtedly strong, causing GBP to spike, many economists have cautioned that the true strength of the UK’s labour market won’t become clear until next year. Wage growth is currently pushed higher by low base effects and the end of the furlough scheme last month could see unemployment rise when this month’s data is released.

With these caveats tempering today’s jobs data, that might explain why the Pound Euro exchange rate couldn’t hold the high ground.

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Pound Euro (GBP/EUR) Exchange Rate Firms on UK Employment Report

The Pound Euro (GBP/EUR) exchange rate has made some tentative gains this morning after the UK’s latest unemployment data indicated a strong recovery in the country’s labour market.

Meanwhile, the Euro (EUR) is struggling after German economic sentiment dropped to its new worst level since the pandemic hit in March last year. However, the single currency is showing some resilience, with the Pound’s gains seemingly limited so far today.

Pound (GBP) Edges Higher on Positive Jobs Data

The Pound is climbing against the Euro this morning following some strong jobs data from the UK.

According to the latest data from the Office for National Statistics (ONS), the UK’s labour market continues its robust recovery from the effects of the pandemic.

In the three months to August, the UK’s unemployment rate dropped to 4.5%, down from 4.6% in the three months to July.

August’s data also shows that average earnings including bonuses increased by 7.2% year-on-year, slightly better than the 7% rise economists had expected.

In addition, the number of employees on payroll increased by 207,000 in September, rising to a record high of 29.2m and well above pre-pandemic levels.

Meanwhile, jobs vacancies hit a fresh record high of 1,102,000 last month.

The latest report indicates that the UK labour market is continuing its impressive post-pandemic recovery, with both employment and hiring demand remaining strong.

However, some analysts are sounding a note of caution.

Rob Clarry, an economist at PwC, says that the end of furlough will be the UK job market’s ‘sternest test’:

‘[W]ith the furlough scheme winding down at the end of September, the labour market now faces its sternest test since the start of the pandemic. We expect to see a period of adjustment as workers made unemployed either enter sectors experiencing high demand for labour, such as transport and construction, or retrain to pursue new vocations.’

Additionally, Tony Wilson, Director at the Institute for Employment Studies, argues that the UK’s economic recovery is being stifled by a labour gap, as the UK currently has just 1.45 unemployed people per vacancy, the lowest number on record. Wilson commented:

‘These shortages are holding back our economic recovery, and won’t fix themselves by just exhorting firms to pay people more. Instead we need to do far better at helping some of the six million people who are outside the labour market because of ill health, caring or full-time study to get back into work.’

With the data looking positive overall, the Pound Euro rate is strengthening. However, its gains may be limited.

Euro (EUR) Dented by Drop in Economic Sentiment

The Euro, on the other hand, initially gained against the Pound this morning but has since turned to the downside.

The initial strength came amid a modest weakness in the US Dollar (USD), thereby supporting the single currency by way of the negative correlation between EUR and USD.

However, the Euro wasn’t strong enough to hold the high ground as markets reacted to the UK’s positive jobs report.

Further adding to EUR’s headwinds, the ZEW economic sentiment index for Germany printed below expectations. The gauge fell from 26.5 to 22.3 in October, missing forecasts of 24.

The reading indicates the lowest investor morale since March 2020, when the coronavirus pandemic hit Europe, as supply bottlenecks and soaring costs hammer Germany’s economic outlook.

GBP/EUR Exchange Rate Forecast: Are Sterling’s Gains Capped?

The UK’s positive jobs report has caused some jitters in the UK stock market, with the FTSE 100 down by 0.43% at the time of writing, as it increases the likelihood of a rate hike from the Bank of England. This may begin to weigh on GBP as the day goes on, perhaps capping gains for the Pound Euro pair or causing it to waver.

As for the Euro, speeches from three European Central Bank (ECB) policymakers this afternoon could cause some movement. However, with the ECB expected to maintain its ultra-accommodative monetary policy, the single currency may remain subdued.