Analysts Forecast Gains for GBP EUR Exchange Rate Not Guaranteed to Stick

April 19, 2015 - Written by John Cameron

STORY LINK Analysts Forecast Gains for GBP EUR Exchange Rate Not Guaranteed to Stick

Friday’s session got underway with a strong shot in the arm for the Pound Sterling (currency:GBP). The latest official UK jobs numbers revealed that the level of British unemployment dropped to its lowest level since the middle part of 2008 at the latest count. The data also pointed to a fall in the number of jobless people of some 76,000. The Pound Sterling enjoyed instant gains against the euro (currency:EUR) in the aftermath of the release and the GBP EUR exchange rate broke back above the 1.3900 threshold as a result.

Currency market participants may have been impressed by the numbers but not all commentators shared their enthusiasm. Martin Beck of the Ernst & Young ITEM Club stated earlier that, ‘the story of the UK labour market has long been a 'jobs-rich' but 'pay-poor' one. The latest numbers are no exception with good news for those looking for work, but less so for those already in employment.’ Many analysts feel that the major driver for any future improvement for economic conditions in the UK will not be an increase in the domestic level of employment, but instead a pronounced pick-up in the level of real wages for UK workers.

Meanwhile, GBP EUR has recorded further gains this afternoon following the publication of the latest Consumer Price Index data in the US. The key-note inflation figures from the States painted a mixed picture. On the one hand, the Consumer Price Index Excluding Food & Energy element of the data beat expectations, showing at an annualised 1.8% versus an anticipated 1.7%. However, the headline CPI inflation number for March showed that, in year-on-year terms, the US economy had slipped into deflation.

Investors took the figures as a sign that the Federal Reserve may now have to consider increasing its key interest rate sooner rather than later and the Greenback recorded strong gains against the euro. The move sent the EUR USD Exchange rate down from 1.0824 at the time it was released to a relatively lowly 1.0734 less than an hour later. The attendant losses for the single currency against the Buck showed themselves as a forward move for GBP EUR via arbitrage funding. However, analysts forecast that these gains for GBP EUR are by no means guaranteed to stick.

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