Pound Sterling (GBP) Makes Gains Vs EUR, USD after Jobs Data

February 16, 2016 - Written by Ben Hughes

STORY LINK Pound Sterling (GBP) Makes Gains Vs EUR, USD after Jobs Data

UK Non-Core CPI Climbs But British Pound Exchange Rates Dip

Although the UK’s latest Consumer Price Index showed an increase in annual inflation in January, with a year-on-year non-core figure of 0.3%, the British Pound went on to trim previous gains against the Euro (GBP/EUR) and US Dollar (GBP/USD) after the data was published.

The Pound Sterling to Euro exchange rate had previously hit a high of 1.2994 but slid to trade in the region of 1.2935 while the Pound Sterling to US Dollar (GBP/USD) exchange rate moved from above 1.4500 to 1.4450.

Core Inflation Falls, OPEC Decision Impacts Risk Appetite and Major Exchange Rates

While non-core inflation edged higher, growing by 0.3% in January, core consumer price gains fell from 1.4% to 1.2% on the year (a bigger dip than anticipated) as month-on-month consumer prices eased -0.8%.

As this result is unlikely to have any impact on the Bank of England’s (BoE) current plans to leave interest rates on hold for some time to come, the Pound failed to sustain its previous rally.

As stated by Bloomberg; ‘Inflation remains well below the Bank of England’s 2% target. With oil prices remaining near a 12-year low and pay pressures weakening, officials say that the economy doesn’t yet warrant a rate increase from a record-low 0.5%. Central to the outlook for rates is pay growth, which has come off the boil in recent months despite unemployment reaching a decade low.’

Demand for the Pound was also negatively affected by the news that OPEC members agreed to a production freeze, but not the cut many had been hoping for.

The Guardian commented; ‘The news comes after a meeting in Doha between Saudi Arabia’s oil minister Ali al-Naimi and his Russian, Qatari and Venezuelan counterpart. The Saudi minister said they would assess the next steps to stabilising the market in the next few months, and he hoped oil producers both inside and outside OPEC would agree to the proposal. He added that the Saudi economy could cope with the current oil price with no problem.’

UK Employment Data Forecast to Trigger GBP to USD, EUR Exchange Rate Movement

As the week continues the Pound has the chance to resume its rally if UK average earnings data surprises forecasts and shows an increase in wage growth.

As it stands, weekly earnings including bonuses is expected to slip from 2.0% to 1.9% in the three months through December year-on-year, with weekly earnings excluding bonuses fell to 1.8% to 1.9%. Unchanged, or positively improved, figures would be Pound supportive. However, below forecast results are liable to drive Sterling lower.

Investors will also be focusing on the UK’s employment change and unemployment rate numbers. The UK unemployment rate is believed to have fallen from 5.1% to 5.0%. However, as the BoE has stressed that wage growth is a major consideration in its current rate hike projections, that result is likely to carry more weighting.

The GBP/EUR exchange rate remained lower as Tuesday’s European session continued despite the ZEW economic sentiment surveys for Germany and the Eurozone showing marked declines in confidence.

The GBP/USD exchange rate may fluctuate before the close of trading as the US Empire Manufacturing report for February is published.

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