Pound Euro (GBP/EUR) Exchange Rate Trims Gains following US Inflation
(Updated 16:10, 13/12/22) The Pound Euro (GBP/EUR) exchange rate ticked higher earlier today but trimmed its gains later in the session.
The Pound (GBP) initially zigzagged higher against the Euro (EUR), as an upbeat market mood boosted the riskier UK currency.
However, softer-than-expected US inflation in the afternoon triggered a sell-off in the US Dollar (USD), which in turn lent support to the Euro by way of EUR’s negative trading relationship with USD.
Mixed British jobs data this morning and worries about the intensifying wave of industrial action across the UK may also have capped GBP’s upside.
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Pound Euro (GBP/EUR) Exchange Rate Firms despite Mixed Employment Report
The Pound Euro (GBP/EUR) exchange rate has faced some turbulence this morning following a mixed UK labour market report. However, overall Sterling has managed to strengthen.
At the time of writing, GBP/EUR is trading at around €1.1663, rebounding by 0.3% from its earlier low.
Pound (GBP) Fluctuates Higher amid Latest Labour Market Overview
The Pound (GBP) initially slipped this morning after mixed UK jobs data worried GBP inventors.
The most troubling aspect of the labour market report was that it indicated a rise in unemployment. The UK jobless rate edged up in the three months to October for the second time in a row, rising from 3.6% to 3.7%. In November, the number of people claiming unemployment benefits jumped by 30,500 – the largest rise since February 2021 and almost ten times the forecast figure.
So far the British labour market has remained resilient, despite the economy slipping into a recession. However, today’s data suggest that this strength is starting to fade.
Meanwhile, wage growth continues to rise, though it lags far behind inflation. In the three months to October, average earnings grew by 6.1%. However, real wages (income after the impacts of inflation) fell 2.7%.
Yet, despite trailing behind inflation, wage growth is historically high. This could prompt the Bank of England (BoE) to continue taking a tougher approach, as it fights to prevent a wage price spiral.
The prospect of more interest rate rises seems to be supporting Sterling, with GBP/EUR bouncing after its initial fall.
Euro (EUR) Falls despite Upbeat German Data
As for the Euro (EUR), the single currency was initially muted as markets awaited the latest ZEW economic sentiment index from Germany and a risk-on tilt prevented the safer Euro from rising against the riskier Pound.
When published, Germany’s economic sentiment indicator showed a sharper-than-expected improvement in morale. With inflation seeming to have peaked and energy markets stabilising, the outlook for Europe’s largest economy is brightening.
Nevertheless, the single currency is struggling this morning. A rise in the price of natural gas may be reviving fears about the Eurozone’s energy security, while Russia-Ukraine worries may also be contributing to the downside.
Pound Euro Exchange Rate Forecast: US Inflation in Focus
Looking ahead, the US inflation rate release later this afternoon could spark some movement in the Pound Euro pair.
Markets expect US inflation to have eased again in November. Such a result would likely dampen Federal Reserve rate hike bets, which in turn could cheer investors. If US inflation cools and markets rally, the riskier Pound could strengthen against the Euro. However, the Euro may resist heavier losses on account of its negative trading relationship with the US Dollar (USD).
Meanwhile, Russia-Ukraine worries could continue to prompt movement in the common currency. Any fresh signs of escalation in the conflict could weigh on EUR.