Pound Euro (GBP/EUR) Exchange Rate Turns South as US Jobs Data Rattles Markets
(Updated 15:15, 7/10/22) The Pound Euro (GBP/EUR) exchange rate relinquished its gains today as stronger-than-expected US employment data cemented expectations for a 75-bp interest rate rise at the Federal Reserve’s next meeting.
U.S. INTEREST RATE FUTURES PRICE IN 92% CHANCE OF A 75-BPS FED RATE HIKE IN NOV, UP FROM 85.5% BEFORE SEPT JOBS REPORT
— Special Situations 🌐 Research Newsletter (Jay) (@SpecialSitsNews) October 7, 2022
This in turn spooked global markets, as more restrictive monetary policy from the Fed could trigger a global economic downturn.
The Euro (EUR) is seen as a safer investment than the Pound (GBP), with the latter becoming even more risk-sensitive since the government’s mini-budget wreaked havoc on UK markets two weeks ago. As such, the sharp deterioration in risk appetite slashed GBP/EUR’s earlier gains.
The Pound Euro pair is currently trading at around €1.1392, down from today’s high of €1.1445.
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Pound Euro (GBP/EUR) Exchange Rate Firms as Markets Reposition
The Pound Euro (GBP/EUR) exchange rate jumped higher this morning as Sterling volatility continues and traders reposition ahead of some high-impact US data later this afternoon.
At the time of writing, GBP/EUR is trading at around €1.1415, up 0.1% on the day.
Pound (GBP) Rises as Investors Buy the Dip
The Pound (GBP) moved higher this morning, despite ongoing concerns about the UK economy.
According to the latest housing market data, UK house prices may have peaked. Economists are concerned that the recent spike in mortgage costs, following the government’s mini-budget two weeks ago, could trigger a housing market crash.
In addition, a report from KPMG and the Recruitment & Employers Confederation indicates a slowdown in UK recruitment. If the labour market is cooling, it’s an early sign of an economic downturn.
Nevertheless, Sterling jumped higher this morning. The UK currency may have entered oversold conditions following its three-day losing streak, prompting traders to pick up a bargain.
However, considering the economic woes facing the UK, GBP/EUR’s gains seem limited.
Euro (EUR) Muted by Poor German Data
At the same time, EUR exchange rates are also acting somewhat erratically. The Euro US Dollar (EUR/USD) exchange rate fluctuated this morning, slumping before quickly bouncing back.
This volatility comes as markets brace for this afternoon’s US employment data, which could have implications for global markets. As the Euro is negatively correlated with the US Dollar (USD), this could certainly be feeding through into EUR’s movement against its other rivals, including GBP.
Part of the reason for EUR’s initial downturn – and what may be helping the Pound Euro exchange rate firm – is the worrying data out of Germany this morning. German industrial production and retail sales both contracted more than forecast in August, printing at -0.8% and -1.3%, respectively.
As Germany is Europe’s largest economy, these signs of an economic downturn could be weighing on EUR sentiment.
Pound Euro Exchange Rate Forecast: More Volatility Ahead?
Looking forward to the remainder of the session, a speech from Bank of England (BoE) policymaker Dave Ramsden could impact GBP. Although Ramsden isn’t set to speak about the current crisis, investors will still be attentive to any clues about upcoming monetary policy decisions or the potential for more emergency interventions.
Later this afternoon, GBP/EUR could be influenced by the Euro’s strong negative correlation to the US Dollar. The latest US labour market data could have a huge impact on USD, which in turn could impact EUR. If the American jobs data is positive, the single currency could slip. However, signs of a slowing US labour market may help buoy the Euro.
Overall, we could see continued volatility in the Pound Euro pair as UK uncertainty persists and markets react to the impactful US data.