Pound Euro (GBP/EUR) Fluctuates Despite Bolstered BoE Rate Hike Expectations
The Pound Euro (GBP/EUR) exchange rate is trading narrowly after the latest UK jobs data showed a cooling labour market.
At time of writing, the GBP/EUR exchange rate is around €1.1618, relatively unchanged from this morning’s opening levels.
Pound (GBP) Supported by Elevated Rate Hike Bets
The Pound (GBP) is experiencing mixed success this morning in the wake of mixed employment data. With unemployment unexpectedly climbing, surging wage growth offset any further losses. Expectations of the Bank of England (BoE) being forced to raise interest rates further supported Sterling.
Against expectations of an unchanged jobless rate of 4%, the number of people filing for unemployment edged higher to 4.2%. Furthermore, employment growth also disappointed to the downside and fell by 66k, against an expected 75k increase. The first drop in job creation in over a year pointed to a cooling labour market.
However, preventing any further losses was record-high average wage growth. With headline pay surging to 8.2% MoM, a level not seen since 2001, another rate hike is all but baked in from the central bank. James Smith, economist at ING, said on the current state of the labour market:
‘Overall, despite the apparent weakening in hiring and ongoing improvement in worker supply, the Bank will remain focused on wages. When it comes to tomorrow’s CPI figures, we think there’s some scope for a positive surprise on services inflation, but ultimately a September rate hike still looks nailed-on.’
Euro (EUR) Buoyed by Improving Confidence
Meanwhile, the Euro (EUR) is finding moderate support after the latest ZEW economic sentiment readings pointed to a modest improvement in confidence across the Euro area.
Expectations of souring economic sentiment were met with surprise improvements. Investor morale in Germany surprisingly brightened in August with growing expectation that the German economy will improve by the end of the year. Elmar Voelker, Senior Fixed Income Analyst at LBBW Research, commented on the latest findings:
‘The slight brightening of economic expectations is positive news, at least on the surface. However, the renewed deterioration in the assessment of the current situation underscores the fact that stabilization is taking place from an extremely weak starting position. Recession concerns remain high.’
Pound Euro Exchange Rate Forecast: UK Inflation Data to Boost the Pound?
Looking ahead, the Pound Euro exchange rate could see further fluctuations with the latest headline CPI inflation reading for the UK. Despite predicting a sharp downturn from 7.9% to 6.8%, the figure remains far above the target rate of 2%. Further tightening will be expected to rein in inflation. Furthermore, core inflation is predicted to climb once again, emphasising the need for at least one more rate hike.
Meanwhile, the Euro could be under renewed pressure if data prints to forecast. Whilst a return to quarterly growth in the Eurozone could boost morale, an expected slip in industrial production could cap gains as factory activity is predicted to decline in June after May’s 0.2% increase.