Pound Euro (GBP/EUR) Exchange Rate Drops following US Data Release
(Updated 15:00, 01/09/2023) The Pound Euro (GBP/EUR) exchange rate took a downturn this afternoon following the release of US employment data for August. Nonfarm payrolls and unemployment readings did not match forecasts – inspiring US Dollar (USD) volatility and consequently buoying the Euro.
The US economy added 187,000 jobs in August 2023 – more than expected but still below the 200,000 threshold, signifying a cooling of labour market conditions. Potential tailwinds from the release were capped, moreover, by a rise in the country’s unemployment rate. Unemployment in the US rose to 3.8% from 3.5% in July as employers struggled to finance new employees.
In the aftermath of the data’s publication, EUR has firmed against several peers. Nevertheless, the Pound has not been without tailwinds of its own.
From being considered the worst-performing economy in the G7 group, economic growth in the UK actually put it in third place behind the US and Canada.
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Pound Euro (GBP/EUR) Exchange Rate Rebounds as UK Manufacturing Improves
The Pound Euro (GBP/EUR) exchange rate experienced an initial downturn this morning, before jumping back as the UK’s finalised manufacturing PMI for August printed above expectations. Meanwhile, finalised manufacturing data for the Eurozone came in below forecast.
At the time of writing, GBP/EUR is trading at €1.1686, relatively unchanged from this morning’s opening levels.
Pound (GBP) Gains Recouped as Finalised PMI Impresses
The Pound (GBP) ticked lower as the European session began today, potentially triggered by a considerable fall in UK house prices. As steep mortgage rates and generally higher living costs weigh on house-seekers’ budgets, prices have fallen at their fastest rate in fourteen years.
Reporters suggest that the tumble was inevitable, given that ‘inflation is eating into disposable income’. Andrew Wishart, senior property economist at Capital Economics, gave a bleak forecast of more hardship to come:
‘With mortgage rates likely to remain around current levels for another 12 months, we expect prices to continue to fall until mid-2024, taking the total drop in house prices since their August 2022 peak from 5.3% now to 10.5%.’
Nevertheless, a better-than-expected PMI reading helped Sterling to regain popularity. The finalised S&P Global/CIPS Manufacturing index for August printed at 43 rather than 42.5: still in contraction territory but buoyed by improving business confidence.
Warnings that ‘a brief upturn in manufacturing production in June is probably not a real positive’ given the extra working day following King Charles’s coronation failed to suppress GBP tailwinds. As John Glen – chief economist at the Chartered Institute of Procurement & Supply – acknowledged, the data provides ‘small crumbs of comfort’ for manufacturers.
Euro (EUR) Softens Following Disappointing Data
The Euro (EUR) faced headwinds this morning as PMI data from the bloc printed below forecasts. August’s finalised manufacturing PMI from HCOB came in at 43.5 rather than 43.7 as expected.
Weighing on manufacturing activity in the region was poor performance in Germany and Austria: the two worst-performing nations ‘by a considerable margin’. Germany’s reading printed with the dismal score of 39.1.
EUR losses may have been capped by economists’ attempts to downplay the result. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented that the latest numbers ‘aren’t as terrible as they might look at first glance’, adding that there are some indications ‘the downward trend from the past few months is starting to lose steam’.
Nevertheless, also weighing on the single currency is strength in the US Dollar (USD). Due to the currencies’ strong negative correlation, USD tailwinds invariably pressure the Euro.
The prospect of upcoming data from the US Bureau of Labour Statistics has put ‘Greenback’ investors in a bullish mood; in comparison, Euro traders are depressed by waning expectations for a 25bps hike in European Central Bank (ECB) interest rates in September.
GBP/EUR Exchange Rate Forecast: US Data to Influence Trading?
This afternoon’s US nonfarm payrolls release could have an effect on the Pound Euro exchange rate, given the negative correlation between EUR and USD.
If the data prints below last month’s reading as expected, USD rates could wobble – potentially buoying the single currency; yet the ‘Greenback’ is expected to stabilise on signs that both US unemployment and wage growth indicators remain steady.
Elsewhere, recession jitters threaten to undercut support for Sterling exchange rates, possibly dampening GBP/EUR. The UK’s economic outlook has deteriorated given persistent inflationary pressures due to labour shortages and escalating wage growth – investors remain uncertain regarding the Bank of England (BoE)’s next move.