Pound Euro (GBP/EUR) Exchange Rate Rallies as USD Weighs on EUR
(Updated 16:15, 18/1/22) The Pound Euro (GBP/EUR) exchange rate has extended its rebound at the end of the European session, allowing it to finish slightly higher than its opening position.
The upside in GBP/EUR came as the US forex market opened, with the US Dollar (USD) gaining ground. As the Euro (EUR) is negatively correlated to the US Dollar, this was likely a factor in the Pound Euro exchange rate’s rally.
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Pound Euro (GBP/EUR) Exchange Rate Recoups Some Losses ahead of UK CPI
(Updated 15:00, 18/1/22) The Pound Euro (GBP/EUR) exchange rate bounced off its two-week low earlier today as investors bought the dip. However, it remains down on this morning’s opening level. At the time of writing, the Pound Euro pair is trading at €1.1955, down 0.1% from when today’s European session began.
A risk-off mood and worries about the UK’s cost-of-living crisis are pushing the Pound (GBP) lower against the Euro (EUR). However, the latest UK employment data was broadly positive, further boosting Bank of England (BoE) rate hike bets.
Sterling is also showing resistance in the run-up to the UK’s inflation rate reading tomorrow. While GBP investors seem hesitant to place any aggressive bets, they’re also upbeat enough to prevent a significant downside.
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Pound Euro (GBP/EUR) Exchange Rate Slumps following UK Pay Data
The Pound Euro (GBP/EUR) exchange rate slumped to a two-week low this morning as markets digested the implications of the UK’s latest jobs data.
Meanwhile, a risk-off mood and better-than-expected German data boosted the Euro (EUR).
Pound (GBP) Slides as Real Wages Fall
The Pound (GBP) fell sharply this morning, despite some upbeat UK jobs data.
The UK’s claimant count change for December beat expectations, with the number of people claiming unemployment benefits dropping by 43,300. In addition, the UK’s unemployment rate fell to 4.1% in the three months to November. Economists had expected it to hold steady at 4.2%.
After initially rising in response to the headline figures, it seems that Sterling slipped as the data came under closer scrutiny.
One worrying aspect of the report was average earnings. Wage growth slowed for the fifth consecutive month in November, with real wages falling due to soaring inflation. Amid the UK’s burgeoning cost-of-living crisis, this data is rather alarming.
Martin Beck, Chief Economic Advisor to the EY ITEM Club, has warned that the fall in real wages is ‘likely to worsen’ in the coming months. Meanwhile, households face tax rises in April and increased price pressures.
Similarly, the CEO of Learning and Work Institute, Stephan Evans, argues that ‘the cost of living crunch has only just begun.’ Evans adds that the jobs data isn’t as positive as it seems:
‘At the same time, rising numbers of people with long-term sickness mean there are one million people fewer in the labour market than on pre-pandemic trends…
‘Employment is still recovering, but on the best measure remains 600,000 down on pre-pandemic levels.’
Other analysts have noted that high vacancies and low wages is an undesirable combination in the labour market.
Euro (EUR) Boosted by Strong German Data
Meanwhile, the Euro has been enjoying a risk-off market mood this morning. As EUR is considered a safer currency than GBP, a lack of risk appetite is favouring the single currency over Sterling.
Adding to EUR’s tailwinds, Germany’s ZEW economic sentiment index for this month smashed forecasts. The indicator jumped by 22.6 points to 51.7 – its highest score since July last year and above expectations of 32.
The surprise reading shows a dramatic improvement in economic sentiment, with investors expecting growth in Europe’s largest economy to pick up in the first half of 2022. Traders are hopeful that Covid cases will fall and supply-chain snarl-ups will ease.
However, the current conditions indicator – which assesses the current economic situation in Germany – fell for its fourth consecutive month. The gauge dropped from -7.4 to -10.2, below expectations of -8.5 and its worst level since May. This may be holding EUR back somewhat in today’s session.
Pound Euro Exchange Rate Forecast: Sterling Subdued ahead of UK CPI
Looking ahead, we may see the Pound Euro pair fluctuate close to its current level as markets continue to analyse the mixed data on both sides.
That said, Sterling could catch some bids as traders buy the dip ahead of the UK inflation rate reading tomorrow. The CPI will likely have a big impact on GBP exchange rates. Inflation is forecast to edge up to 5.2%. If it overshoots, Sterling could climb on the higher likelihood of a Bank of England (BoE) rate hike next month.