Pound Euro (GBP/EUR) Exchange Rate Ticks Higher amid Rising German Unemployment
The Pound Euro (GBP/EUR) exchange rate is firming today, following an increase in German unemployment levels.
At the time of writing, GBP/EUR is trading at around €1.1565, a rise of just over 0.2% from today’s opening levels.
Euro (EUR) Edges Lower as German Unemployment Rises
The Euro (EUR) is softening this morning, following news that German unemployment had increased in December.
On a monthly basis, the unemployment rate increased from 5.8% to 5.9%, indicating continued looseness in the labour market. This is further compounded by the largest increase in December job losses since 2019, with 31,000 Germans becoming unemployed.
Recently, the Eurozone’s largest economy under the microscope as the European Central Bank’s (ECB) tightening cycle takes root. Today’s data suggests that the economy may continue to weaken, with unemployment likely to continue falling.
Carsten Brzeski, Global Head of Macro at ING, commented:
‘This trend looks set to continue. Companies in both manufacturing and services have scaled down their recruitment plans since the summer, insolvencies have gradually increased, and the structural transition is far from over.’
As such, investors may be increasing their bets that the ECB will begin to unwind its monetary policy in the near future.
Furthermore, the US Dollar (USD) is enjoying modest support today amid a risk-averse market mood. With the pairing sharing a negative correlation, this is likely contributing additional headwinds for the common currency.
Pound (GBP) Undermined by Easing Inflationary Pressures
The Pound (GBP) is wavering today, despite gaining ground against the Euro, amid signs of easing inflationary pressures.
Today, Kantar published a report which found that grocery price inflation in the UK slowed to 6.7% in December. This marked the lowest levels since April 2022, and the fastest monthly decline on record.
Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, commented:
‘The rate of inflation is coming down at the fastest pace we have ever recorded, but consumers are still facing pretty hefty pressures on their budgets.’
Following the recent cooldown in headline inflation, the figure is furthering bets on imminent interest rate cuts from the Bank of England (BoE). These bets may be exerting additional pressure on GBP exchange rates.
Pound Euro Exchange Rate Forecast: Inflation Data in Focus
Looking ahead for the Euro, tomorrow brings the release of the latest German inflation data, reflecting December’s levels.
Economists forecast an uptick in the headline rate, which could strengthen EUR. If inflation is rising once again, the European Central Bank (ECB) may need to keep interest rates held for longer.
This sets the stage for the bloc’s inflation data on Friday. Here, the headline consumer price index is expected to increase, while core CPI cools.
Decelerating core inflation could be the ECB’s focus here, as it removes more volatile measures from the reading. This could weaken the Euro, although if headline inflation increases notably, EUR may rally as investors anticipate a hawkish shift from the ECB.
For the Pound, the final service PMI for December is due to print tomorrow. If this confirms a recovery in the vital sector, GBP could see some support.
However, if it prints below the preliminary reading, Sterling could struggle to gain ground as it may further recession fears.