GBP/EUR Exchange Rate: UK Wage Growth Lagging Inflation Fuels Cost-of-Living Concerns
After rebounding at the end of last week on Bank of England (BoE) rate hike expectations, the Pound Euro exchange rate has come under pressure since UK jobs and inflation data intensified concerns over a cost-of-living crisis that could weaken UK economic growth.
While the UK unemployment rate remained unchanged at 4.1%, wage growth continues lagging behind inflation meaning a pay decline in real terms.
Consumer price index figures released this morning revealing inflation hit a new 30-year high of 5.5% in January has added to worries over the squeeze on UK household incomes, while increasing the likelihood of the BoE hiking rates again in March.
Retail sales figures released on Friday for the UK in January may ease some of the pressure on GBP/EUR as the 1% forecasted growth may relieve some concerns over the cost-of-living squeeze impacting consumer confidence.
GBP/USD Exchange Rate: Pound Rangebound on UK Growth Concerns
The Pound US Dollar exchange rate has held in a narrow range over the last week as expectations for a rate hike from the BoE underpinned Sterling. However, comments from chief economist Huw Pill cautioned rate rises should be ‘steady handed’.
GDP data showing the UK economy grew 7.5% in 2021 – its fastest rate since the 1940s – provided the Pound support but growth contracting -0.2% in December and the fourth quarter reading coming in below forecast at 1% capped upside in GBP/USD.
Against the backdrop of soaring energy and fuel prices, tax increases, and a cost-of-living crisis, concerns over the UK’s economic growth outlook have weighed on GBP sentiment.
Looking ahead, UK services and manufacturing PMIs for February may improve optimism over economic activity in the country, as forecasts point to expansion in both sectors this month.
USD/GBP Exchange Rate: US Dollar Bolstered by Fed Expectations
The US Dollar Pound exchange rate has held steady over the last week on rising expectations that the Federal Reserve will raise interest rates more aggressively than previously anticipated.
US inflation surging to its highest level in 40 years at 7.5% in January bolstered USD exchange rates as markets began pricing in larger and more aggressive rate hikes from the Fed to combat rising inflation.
Comments from Fed policymaker James Bullard increased expectations for an aggressive rate hike path by calling for a full percentage point rise over the next three Federal Reserve policy meetings.
The Federal Open Market Committee (FOMC) meeting minutes published this evening may boost the US Dollar, if they shed light on the Fed’s plans to aggressively raise interest rates.
EUR/USD Exchange Rate: Euro Slips on Threat of Ukraine Conflict
The Euro US Dollar exchange rate weakened over the last week as the prospect of a Russian invasion of Ukraine dented the single currency.
Tensions continued to escalate between Russia and NATO over the week before reports that Russia was moving some of its troops away from the Ukraine border lifted optimism a conflict may be avoided.
Eurozone data has provided the Euro with some support early in this week’s session as employment rose above pre-pandemic levels and trade data showed a solid surplus in 2021, while German economic sentiment rose to its highest level since July.
More high-impact data releases will likely drive EUR/USD movement over the next week, with Eurozone manufacturing and services PMIs for February, and a forecasted rise in German business morale in February.