Pound Euro (GBP/EUR) Exchange Rate Softens as Investor Optimism Falters
(Updated 16:15, 13/9/22) The Pound Euro (GBP/EUR) exchange rate wavered lower today as a more upbeat tone around the UK economy faded.
Pound Sterling (GBP) initially gained some ground against the Euro (EUR) this morning following the UK’s latest labour market report. The jobs data revealed a mixed picture, but it played into the narrative that the Bank of England (BoE) may need to continue aggressively raising interest rates.
However, news of renewed strike action at Felixstowe container port pressured the Pound. GBP investors fear that the walkout could add further stress to the UK’s fragile economy.
In addition, commentators have now had time to scrutinise Liz Truss’s energy support plan announced last week. The two leading thinktanks that analyse government spending have increased their criticism of Truss’s plans. In an interview with Times Radio, Paul Johnson, Director of the Institute for Fiscal Studies (IFS), called the plan ‘incredibly expensive’ and ‘totally untargeted’.
“It's extraordinary that they didn't publish a cost with the announcement."
It's ‘extraordinary’ that the government did not publish how much the Energy Price Guarantee announcement would cost, director general at the Institute for Fiscal Studies Paul Johnson tells #TimesRadio. pic.twitter.com/O692vxsmv5
— Times Radio (@TimesRadio) September 12, 2022
Meanwhile, the Resolution Foundation has published a 28-page report titled ‘A blank cheque‘.
The initial optimism around the energy support package may have faded somewhat.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Wobbles amid Mixed Trading Signals
The Pound Euro (GBP/EUR) exchange rate wavered this morning as markets reacted to the latest UK jobs data, German economic sentiment, and news of more strikes at Felixstowe.
At the time of writing, GBP/EUR is trading around €1.1531, after rising to €1.1555 and then losing its gains.
Pound (GBP) Fluctuates on Jobs Report and Strike Action
The Pound (GBP) initially edged up against the Euro (EUR) this morning following the UK’s mixed labour market report.
GBP investors cheered a drop in the UK unemployment rate, which hit a 48-year low of 3.6%. However, this positive news was offset by a decrease in the employment rate and a rise in economic inactivity.
In addition, wage growth exceeded forecasts but remains well below inflation. Average earnings including bonuses rose from 5.2% to 5.5%. While this means that real incomes continue to fall, it could also prompt further action from the Bank of England (BoE), which wants to prevent second-round inflation effects.
While the labour market remains extremely tight, it is starting to slacken. Vacancies have fallen for the second consecutive month after almost two years of uninterrupted growth.
This mixed report gave Sterling an initial lift this morning, but it wasn’t enough to keep the Pound afloat.
News of fresh strike action at Felixstowe – the UK’s largest container port – saw Sterling relinquish its gains.
NEW: Unite announces fresh strikes in the Felixstowe port dispute. Eight days of walkouts called from 07:00 Tuesday 27 September and ending on 06:59 on Wednesday 5 October. The last eight days brought the port to a standstill
— Josiah Mortimer (@josiahmortimer) September 13, 2022
Workers announced another eight-day walkout after rejecting a pay offer from CK Hutchinson, the port’s owner.
The strike could cause further disruption to the UK’s supply chains, which have been hammered by Brexit and the Covid pandemic. This in turn could have wider negative impacts on the country’s economy.
Euro (EUR) Mixed amid Downbeat Data and Falling Gas Prices
Meanwhile, the Euro managed to resist losses this morning as optimism around Ukraine underpinned the single currency.
The Ukrainian military has made rapid progress in its long-awaited counteroffensive, raising hopes that the war – and the European energy crisis – may be over sooner than anticipated.
European markets are rallying, and EU gas prices have fallen to a seven-week low. This in turn is alleviating worries about the impact of surging energy costs and gas shortages in the Eurozone.
However, Germany’s recent ZEW economic sentiment index is putting some pressure on EUR.
Economic sentiment in Europe’s largest economy fell for the third consecutive month, dropping to a fresh 14-year low of -61.9 – worse than forecasts of -60.
The report comes after the Ifo cut growth forecasts for Germany yesterday, predicting a recession in the Eurozone’s manufacturing powerhouse next year.
Pound Euro Exchange Rate Forecast: More Movement Ahead
Later today, the US inflation rate this afternoon could impact the Pound Euro pair. Economists expect American inflation to have eased again last month. If so, markets could scale back their expectations for future Federal Reserve interest rate rises.
Such an event could dent the US Dollar (USD), which in turn may lend some support to the Euro due to EUR’s negative correlation with USD.
Looking further ahead, tomorrow’s UK inflation rate is in focus. Economists expect inflation to have edged up to 10.2% in August, although falling fuel prices may affect the headline figure. If the CPI exceeds forecasts, GBP could rise on BoE rate rise bets. If inflation eases, Sterling could slip.