Pound Euro (GBP/EUR) Exchange Rate Stumbles following UK Jobs Report
The Pound Euro (GBP/EUR) exchange rate fell this morning amid softer UK wage growth and upbeat data from Germany.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1639, roughly 0.3% down from the start of the European session.
Pound (GBP) Falls following Mixed UK Data Releases
The Pound (GBP) is weakening today following the release of the UK’s average earnings and unemployment rate for October.
The latest labour market report revealed that average earnings dropped more than expected, down from 7.8% in September to 7.3% in the three months to October, against forecasts of 7.4%.
This sharp slowdown in wage growth will be met with a sigh of relief at the Bank of England (BoE), as it suggests the bank’s aggressive rate hiking cycle may be having the desired effect. However, this is bad for Sterling, as the focus now shifts to when the BoE will begin cutting interest rates.
Ashley Webb, a UK economist at Capital Economics, commented:
‘The sharp fall in wage growth in October will probably further fuel investors’ expectations that interest rates could be cut as soon as the middle of next year, and leaves our forecast for rate cuts to start late in 2024 looking a bit more challenging.’
However, the UK’s unemployment rate held steady over the same period, remaining at 4.2% rather than a predicted 0.1% rise. This may be limiting the Pound’s losses.
Euro (EUR) Ticks Up after Hitting Three-Month Low
The Euro (EUR) is trading slightly higher today, after hitting a three-month low against the Pound yesterday, follow stronger-than-expected German data.
Germany’s latest ZEW economic sentiment index beat forecasts this morning. The index rose to 12.8 in December, up from November’s result of 9.8 and higher than the predicted score of 8.8.
This is the highest result in the index since March, marking a dramatic recovery in investor morale in the Eurozone’s largest economy.
However, with European Central Bank (ECB) rate cut speculation swirling, it may not be enough to keep the European currency afloat.
Pound Euro Exchange Rate Forecast: BoE and ECB Interest Rate Decisions in Focus
Looking ahead to Thursday, the highly awaited BoE and ECB interest rate decisions are set to be announced.
The BoE is set to hold rates at 5.25%, so the focus is on forward guidance. Any potential dovish commentary may negatively impact the Pound, while a push back on rate cut bets could boost GBP.
Meanwhile, with markets predicting a dovish tone to accompany the ECB’s interest rate decision, could we see the Euro fall?
Before that, on Wednesday, the UK’s latest GDP figure is set for release. Forecasters expect the UK economy to have stalled in October. However, if results beat forecasts, as with the previous month’s 0.2% rise, this could bolster the Pound moving forward.