Pound Euro (GBP/EUR) Exchange Rate Dips amid Growing UK Labour Market Slack
The Pound Euro (GBP/EUR) exchange rate is dropping today, amid signs of growing looseness in the UK labour market.
At the time of writing, GBP/EUR is trading at around €1.1524, a fall of just over 0.4% from the morning’s opening rates.
Pound (GBP) Slides amid Signs of Labour Market Slowdown
The Pound (GBP) is falling today, following the publication of August’s wage data. The figures pointed to signs of growing looseness in the UK labour market, weighing heavily on Sterling.
The Office for National Statistics (ONS) found that average earnings (excluding bonuses) ticked downward, printing at 7.8%. July’s figure was revised upwards to 7.9%, indicating signs of easing inflation pressures.
Furthermore, the ONS found that vacancies in the UK had fallen, indicating slowing employment demand.
Hannah Slaughter, Resolution Foundation’s Senior Economist, explored this:
‘Employment and vacancy levels continued to fall over the summer, while the pace of private sector pay growth has slowed. Fast falling inflation should help to prop up real pay packets even as the labour market cools down, and monetary policy makers face a tough judgement on the future path of interest rates.’
The data is suggesting to investors that the Bank of England (BoE) are unlikely to hike rates further at their next meeting. As such, pared back bets are contributing an additional headwind to GBP exchange rates.
Euro (EUR) Tepid despite Improving German Business Outlook
The Euro (EUR) is seeing muted trade today, as investors digest the latest German ZEW economic sentiment index.
The reading printed notably higher than forecasts, coming in at -1.1 as opposed to -9.3, indicating an improving outlook. However, analysis of the German economy has barely shifted.
Professor Achim Wambach, President of ZEW, explained:
‘There’s a noticeable uptick in the economic expectations of financial market experts in October 2023. In contrast, the assessment of the current economic situation in Germany has barely changed. The heightened economic expectations are accompanied by the anticipation that inflation rates will decrease further and the fact that now more than three-quarters of respondents anticipate stable short-term interest rates in the eurozone.’
As Germany is the Eurozone’s largest economy, decreasing pessimism is serving to underpin EUR from further losses.
Pound Euro Exchange Rate Forecast: UK CPI to Dent Sterling?
Looking ahead for the Pound, tomorrow brings the release of September’s consumer price index.
Economists forecast both headline and core inflation to cool over the month, which may weaken Sterling.
If it prints in line with forecasts, BoE rate hike bets may be pared back as further tightening appears unneeded. This could bring additional headwinds to Sterling.
For the Euro, the core catalyst of movement is likely to be tomorrow’s speech from ECB President Christine Lagarde.
While recent communication from the bank has leaned dovish, if President Lagarde strikes a hawkish tone EUR could rally.