Pound Euro (GBP/EUR) Exchange Rate Stays Strong despite Volatility
(Updated 17:00, 14/2/23) The Pound Euro (GBP/EUR) exchange rate rose to a two-week high today following the latest UK jobs data. Sterling did trim its gains somewhat after a bout of volatility, but it still remains up against the single currency.
The Pound’s (GBP) initial upside came after new UK data revealed a resilient labour market and rising wage growth, thereby prompting bets on more interest rate rises from the Bank of England (BoE).
Markets witnessed some turbulence in the afternoon following the publication of the US consumer price index for January. Although inflation eased, it came in above forecasts, suggesting price pressures may be stickier than expected.
The subsequent fluctuations in the US Dollar (USD) affected the Euro (EUR), due to EUR’s negative correlation with USD.
The data also sent ripples through global markets, with expectations of more Federal Reserve interest rate rises spooking investors. Amid the shift in sentiment, the riskier Pound faced some losses against the safer Euro.
Nevertheless, the Pound Euro exchange rate remained strong. At the time of writing, GBP/EUR is trading at €1.1336, up almost 0.3% from the start of the European session.
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Pound Euro (GBP/EUR) Exchange Rate Gains as Jobs Data Boosts Rate Expectations
The Pound Euro (GBP/EUR) exchange rate jumped higher this morning following the publication of the UK’s latest labour market report, which may prompt further action from the Bank of England (BoE).
At the time of writing, GBP/EUR is trading at a two-week high of €1.1338, up 0.3% from the start of the session.
Pound (GBP) Rises following Labour Market Data
The Pound (GBP) jumped at the start of today’s session as markets reacted to the latest jobs data out of the UK.
The latest employment overview from the Office for National Statistics (ONS) shows that the labour market remains tight, which in turn is boosting bets on sustained interest rate hikes from the Bank of England.
The UK jobless rate held at 3.7% in December, remaining near historical lows and below pre-pandemic levels. Meanwhile, more jobs than expected were added to the UK economy and unemployment benefits claims unexpectedly fell.
Furthermore, wage growth came in above forecasts. Average earnings (excluding bonuses) rose from 6.5% to 6.7%. Although wage growth continues to lag behind inflation, it is far higher than it usually is, and this is likely to cause concern among rate setters at the BoE.
Policymakers may opt for more rate hikes to dampen second-round inflation effects, and these expectations gave the Pound a lift.
However, the report contained signs that the labour market is cooling. Vacancies fell for the seventh consecutive period, with companies reining in hiring plans as the UK economy slows. This may be capping GBP’s gains.
Euro (EUR) Supported by Eurozone Data
The Euro (EUR), meanwhile, is also enjoying some positive data today, which could also be limiting GBP/EUR’s upside.
Earlier this morning, German wholesale prices unexpectedly ticked higher, printing at 0.2% month over month, rather than -1.4%. This indicates that inflation remains persistent, thereby boosting European Central Bank (ECB) rate rise expectations.
The Eurozone’s second GDP estimate for the fourth quarter of 2022 confirmed an expansion, perhaps providing EUR with a further modest boost.
In addition, the bloc’s employment change result for the same period exceeded expectations, pointing to a strong Eurozone labour market.
This positive data has seen EUR firm against many of its rivals today, although it is ceding ground to the Pound.
The common currency may be finding its upside potential limited amid worries about a fresh escalation in the Russia-Ukraine war. Jens Stoltenberg, the NATO Secretary General, has said that Russia’s expected spring offensive has likely already begun.
Pound Euro Exchange Rate Forecast: UK Inflation in Focus
Looking ahead, risk sentiment could impact the Pound Euro exchange rate through the remainder of today’s session. If the market mood remains upbeat, the riskier Pound could post further gains against the safer Euro.
Meanwhile, Russia-Ukraine news could continue to impact the single currency. Any fresh evidence of Russia’s new ground offensive or indications of an escalation could trigger further downsides in the Euro.
GBP investors are likely now looking ahead to tomorrow’s UK consumer price index. Economists expect inflation to ease marginally but remain in double digits. Such a result could boost BoE rate hike bets, which in turn may see Sterling strengthen.