GBP/EUR Exchange Rate Rebounds from Lows amid German Growth Concerns
(Updated 14:15 15/5//2022) The Pound Euro (GBP/EUR) exchange rate remains on the defensive this afternoon but has rallied from the day’s worst levels.
The rebound in GBP/EUR appears linked to fresh concerns over German economic growth. This comes as the International Monetary Fund (IMF) warns German GDP is likely to remain near zero in 2023.
Elsewhere the Euro is facing resistant due to its negative correlation with the US Dollar (USD). The latter is rallying this afternoon as market risk appetite sours.
Meanwhile, the Pound’s upside potential remains limited in light of the UK’s underwhelming jobs data releases at the start of the session.
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Pound Euro Exchange Rate Undermined by Lacklustre Employment Figures
The Pound Euro (GBP/EUR) exchange rate is trending lower this morning, in the wake of the UK’s latest jobs report.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1489. Down roughly 0.3% from this morning’s opening rate.
Pound (GBP) Weakens on Soft Employment Figures
The Pound (GBP) is on the back foot this morning. Sterling sentiment being sapped by the publication of the UK’s latest jobs report.
Data published by the Office for National Statistics (ONS) revealed domestic unemployment unexpectedly rose from 3.8% to a 14-month high of 3.9% in March.
Headline indicators for the UK labour market for January to March 2023 show:
▪️ employment was 75.9%
▪️ unemployment was 3.9%
▪️ economic inactivity was 21.0%
— Office for National Statistics (ONS) (@ONS) May 16, 2023
Analysts suggest the surprise uptick in unemployment highlights the uncertainty facing many businesses.
Kitty Ussher, Chief Economist at the Institute of Directors, comments:
‘A combination of high costs and cash-strapped consumers is now causing some businesses to hesitate before hiring, uncertain as to what the future holds. As a result, the number of employees has fallen for the first time in over two years, and the unemployment rate is starting to rise from its post-pandemic low.’
The accompanying wage growth figures also missed forecasts. Average earning’s (excluding bonuses) ticked up from 6.6% to 6.7%, falling short of expectations it would accelerate to 6.8%.
While this sees wage growth match the one-year struck in December, it remains well below inflation.
Taken together, the underwhelming employment and wage figures appear to be sapping expectations for future Bank of England (BoE) interest rate hikes. This in turn is weighing on the Pound this morning.
Euro (EUR) Dented by Slump in German Economic Sentiment
The Euro (EUR) is also facing headwinds this morning in response to Germany’s latest ZEW survey.
May’s survey reported a sharp deterioration of economic sentiment. The sentiment index plummeting from 4.1 to -10.7. This was well below market forecasts of -5.3 and was the worst reading since December.
The Euro faltered as the survey saw financial market experts suggest Germany could slip into a mild recession this week amid an increasingly unfavourable economic situation.
Pound Euro Exchange Rate Forecast: ECB’s Lagarde in Focus
Still to come today is a speech by ECB President Christine Lagarde. Her remarks could inject volatility into the Pound Euro (GBP/EUR) exchange rate this afternoon as EUR investors look to her to shed more light on the ECB’s policy outlook.
In the press conference which followed the ECB’s policy meeting at the start of May, Lagarde appeared more hawkish than the statement which accompanied the bank’s rate decision. Lagarde warned of ‘more ground to cover’ in the fight against inflation.
If she reiterates the need for the ECB to take more action the Euro could strengthen.
Meanwhile, GBP investors will look to a speech by BoE Governor Andrew Bailey on Wednesday in hopes it will provide more clarity on the bank’s policy outlook.
Expect to see the Pound weaken if Bailey remains cagey on the possibility of more rate hikes.