Pound Euro Exchange Rate Holds Near Monthly High as Jobs Data Boosts Rate Hike Bets

Pound Euro (GBP/EUR) Exchange Rate Consolidates Gains after Strong Jobs Data

(Updated 16:00, 16/11/21) The Pound Euro (GBP/EUR) exchange rate has managed to hold its gains this afternoon. GBP/EUR has wavered between €1.1824 and €1.1853, up from €1.1798 at the opening of today’s European session.

The initial upside came off the back of strong post-furlough jobs data this morning and hawkish comments from Bank of England (BoE) Governor Andrew Bailey yesterday, which have sparked new hopes of a rate hike this year.

Despite suffering some profit-taking after soaring this morning, the Pound Euro exchange rate has held most of its gains.

The Euro (EUR), meanwhile, has remained under pressure thanks to its negative correlation with a strengthening US Dollar (USD). US retail sales rose significantly in October, printing at 1.7% to beat market forecasts of 1.4%. In response, the US Dollar hit a fresh 16-month high against the Euro.

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Pound Euro (GBP/EUR) Exchange Rate Surges on Strong Post-Furlough Employment Figures 

The Pound Euro (GBP/EUR) exchange rate has surged to a two-week high today, recovering from its slump earlier this month when the Bank of England (BoE) left interest rates unchanged. 

The upside comes as BoE rate hike bets are back on, boosted by comments from the bank’s Governor Andrew Bailey and strong UK jobs data. However, GBP/EUR has since fallen from today’s highs, losing about half of its gains, amid some profit-taking. 

Pound (GBP) Skyrockets on Strong Jobs Data 

The Pound (GBP) has roared higher today following impressive employment reports from the UK. 

September’s unemployment rate dropped from 4.5% to 4.3%, beating forecasts of 4.4%. In addition, the Office for National Statistics (ONS) estimates an increase of 160,000 employees on payrolls in October. This latter figure is the first suggestion that the end of the furlough scheme in September did not trigger a rise in unemployment. 

While these figures would likely support Sterling on their own, they come against the backdrop of the BoE’s interest rate decision earlier this month. The bank decided not to raise rates, saying that policymakers wanted to see how the end of the job retention scheme impacted the labour market. 

As such, the latest data has helped to revive hopes of a Bank Rate rise this year, especially following comments from BoE Governor Bailey yesterday. Speaking in front of MPs, Bailey said that ‘all meetings are in play’ for a possible tightening of monetary policy as he expressed concern over soaring inflation. He said: 

‘I’m very uneasy about the inflation situation. I want to be very clear on that. It is not, of course, where we wanted to be, to have inflation above target. On the decision itself, however, it was a very close call in my view.’ 

These two factors have reignited rate hike bets for the BoE’s December meeting. In response, the Pound Euro pair has surged by 1.15% since yesterday to hit its highest level this month, though it has eased off today’s highs. 

Euro (EUR) Dented by Diverging Policy 

With a BoE rate hike once again a possibility, the Euro (EUR) is struggling today. The downside comes despite quarter-on-quarter GDP growth printing at 2.2% – as expected – and the employment change rate beating expectations by 0.1 percentage points to rise from 0.7% to 0.9%. 

Once again, policy divergence between the European Central Bank (ECB) and the BoE is undermining the single currency and boosting the Pound Euro pair. Governor Bailey’s comments stand in stark contrast to a speech ECB President Christine Lagarde made yesterday. 

Speaking to EU lawmakers, Lagarde pushed back on market bets for an earlier-than-expected rate hike, saying a 2022 rate rise was ‘very unlikely’. She said: 

‘At a time when purchasing power is already being squeezed by higher energy and fuel bills, an undue tightening of financing conditions is not desirable, and would represent an unwarranted headwind for the recovery. 

‘If we were to take any tightening measures now, it could cause far more harm than it would do any good.’ 

Diverging policy approaches from the two central banks saw EUR hit a 20-month low against GBP last month. Today, the single currency is feeling that pressure once again. 

Pound Euro Exchange Rate Forecast: Tomorrow’s Inflation Data in Focus 

At the time of writing, the Euro has managed to regain some lost ground. This could be a correction if the Pound was overbought, or some profit-taking among GBP investors. It will be interesting to see if the Pound Euro pair can hold its impressive gains through the entire session. 

Another speech from Lagarde this afternoon could create more headwinds for the single currency, particularly if she repeats the ECB’s dovish stance. 

Tomorrow morning could bring another jump in GBP. The UK inflation rate is forecast to rise from 3.1% to 3.9%, which may further boost bets for a BoE rate hike in December. 

Samuel Birnie

Contact Samuel Birnie