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GBP/EUR Fails to Capitalise as Greece Re-enters Recession

May 15, 2017 - Written by Tim Boyer

The GBP/EUR exchange rate is struggling around opening levels of 1.1792 today.

The British Pound has been kept weak by a new report from EY ITEM Club which offers a dovish forecast for the UK labour market over the coming years.

As well as a -0.1% fall in employment in 2018, the unemployment rate will rise from 4.7% to 5.4%, increasing another 0.4% in 2019, the report predicts.

‘The UK labour market may be starting to become a victim of its own success,’ comments Senior Economic Advisor to EY ITEM Club Martin Beck. ‘As the proportion of people in work has climbed ever higher, firms may have found it more difficult to fill vacancies, resulting in greater utilisation of the existing workforce and slower jobs growth.’

The report also forecasts that wages will increase by 2.75% this year; considering tomorrow’s inflation figures are expected to show a 2.6% rise in consumer prices, this therefore makes it likely that workers will be hit by a decline in real wages before the end of the year.

However, the Pound has been prevented from making losses by the fact the Euro is also on unappealing form today.

Preliminary estimates for first-quarter Greek GDP suggest the economy contracted -0.1% in the January-March period, which means the country would officially have entered recession again.

Year-on-year the economy shrank -0.5%. In both quarterly and yearly prints the figures represented a slowdown on the pace of contraction seen at the end of 2016, but the weakness still serves as a reminder of how precarious a position Greece currently occupies.

Tomorrow will likely be a volatile day for the GBP/EUR exchange rate, due to the release of tier-one data from both the UK and the Eurozone.

The UK consumer price index is expected to show core inflation accelerated from 1.8% to 2.3% - firmly over the Bank of England’s (BoE) target - while overall price growth is expected to clock in at 2.6%, up from 2.3%.

This is likely to weigh on the outlook for consumer spending and could sour appetite for the British Pound, especially given that the Monetary Policy Committee (MPC) seems prepared to tolerate above-target inflation for some time yet until the wider economy shows signs of consistent strength.

Meanwhile, Eurozone data includes first-quarter Italian and Eurozone GDP figures, as well as the German ZEW survey results.
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