Pound Euro Exchange Rate Hits One-Year Low on UK Jobs Data

Pound Euro (GBP/EUR) Exchange Rate Slumps to One-Year Low as UK Outlook Darkens

(Updated 14:30, 14/6/22) The Pound Euro (GBP/EUR) exchange rate has slumped to a one-year low today.

The initial downside came after disappointing UK jobs data. The unemployment rate unexpectedly rose while real wages fell. This exacerbated fears about the UK’s bleak economic outlook.

Worries of a trade war between the EU and the UK are also hammering Sterling. The UK government has prepared legislation to scrap parts of the Northern Ireland protocol, with the EU saying it will now launch legal action over the ‘violation’ of the Brexit agreement.

A trade war between the UK and the EU would likely further damage Britain’s already-struggling economy.

Adding to the headwinds, the Scottish First Minister Nicola Sturgeon has announced plans to campaign for a new referendum on Scottish independence. The last independence vote was held in 2014, when 55% of Scots voted to remain part of the UK.

However, this vote predated the Brexit referendum, where Scotland voted 62% to 38% to remain in the EU.

If Scotland did vote to leave the UK and presumably join the EU – it would likely create further political instability and economic headwinds for the rest of Britain.

With these three issues weighing heavily on the Pound (GBP), GBP/EUR slumped. The Pound Euro pair plunged from €1.1678 to €1.1564 today, a fall of almost 1%.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Declines on UK Labour Market Report

The Pound Euro (GBP/EUR) exchange rate slipped this morning after the UK’s unemployment rate unexpectedly rose.

The Euro (EUR), meanwhile, initially enjoyed a weaker US Dollar (USD). Since then, we’ve had some mixed German data, which markets are still digesting.

Pound (GBP) Falls as Unemployment Rate Rises

The Pound (GBP) is under pressure today after a downbeat labour market report.

Economists had expected the UK jobless rate to fall from 3.7% to 3.6%. Instead, it rose to 3.8% – the first rise the UK unemployment rate since the pandemic recovery began. This could be a bump in the road, or it could be a first indication that the UK jobs recovery is running out of steam.

In addition, real wages – excluding bonuses – are falling at their fastest rate in over a decade as surging inflation continues to outpace pay.

Brexit concerns are adding to GBP’s downside. Yesterday, the UK government published a bill to scrap parts of the Northern Ireland protocol, while admitting that such action would break international law.

The EU has warned that it will retaliate if the UK seeks to abandon the protocol agreement, fuelling fears of a potential UK-EU trade war. Such an event would likely damage the UK economy at a troubling time, and these concerns are weighing on Sterling today.

Euro (EUR) Enjoys USD Weakness

Meanwhile, the Euro initially firmed this morning as it enjoyed its negative correlation to the safe-haven US Dollar. As risk appetite tentatively returned to markets, USD weakened, thereby boosting EUR.

Since then, however, the market mood has soured and a renewed demand for the US Dollar may be limiting the single currency’s gains.

The latest ZEW economic sentiment indicator for Germany is also impacting the Euro. Sentiment in Europe’s largest economy improved this month, although it remains in negative territory. While investors are less pessimistic about Germany’s future, economic risks still darken the horizon.

This modest improvement may have given EUR some support, although the upside is likely rather weak.

Pound Euro Exchange Rate Forecast: Could Sterling Recover Tomorrow?

As the day goes on, it seems like a recovery in Sterling today is unlikely. Therefore, we could see GBP/EUR continue its current trajectory.

That said, volatility and uncertainty have rocked markets in recent weeks. There’s always the chance that an unforeseen event could affect the Pound Euro pair. For instance, any troubling news from the Russia-Ukraine war could weigh on the single currency.

Tomorrow’s Eurozone balance of trade figures could also dent EUR. Forecasters expect the bloc’s trade deficit to widen.

The Federal Reserve interest rate decision could also have a huge impact on GBP/EUR. If a 50-bps rate hike boosts the US Dollar, the Euro may suffer.

Samuel Birnie

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