EUR to GBP Exchange Rate Slips as UK Wage Growth Beats Expectations

August 16, 2017 - Written by Ben Hughes

STORY LINK EUR to GBP Exchange Rate Slips as UK Wage Growth Beats Expectations

Strong data from the Eurozone and Britain boosted both the Euro and British Pound today, but investors were more eager to buy the recently undervalued Pound from its lows. This caused the Euro to Pound exchange rate to fall.

After a brief boost to a new 2017 high of 0.9139, EUR/GBP slipped on Wednesday to below the level of 0.91 again. The pair now trends closer to the week’s opening level of 0.9089.

EUR Supported by Stronger Q2 Growth Projections

The Eurozone may have grown at an even better rate in Q2 2017 than previously expected, if the latest Gross Domestic Product (GDP) projections are accurate.

The first Q2 growth estimates for the currency bloc came in at 0.6% quarter-on-quarter and 2.1% year-on-year.

However, the updated yearly growth estimate is an even better-than-expected 2.2%, keeping investors optimistic about the Eurozone growth outlook.

This was partially due to strong yearly growth data from Germany and Italy this week.

Germany’s yearly growth was forecast to come in at 1.9%, but printed at 2.1%. Italy’s beat 1.4% forecasts with a result of 1.5%.

Overall, this week’s Eurozone growth data has been optimistic and has given investors more reason to hope that the European Central Bank (ECB) could begin to wind back its quantitative easing (QE) measures in the foreseeable future.

Despite this, the Euro was unable to hold its ground against a stronger Pound today.

GBP Boosted by Stronger than Expected Wages

After tumbling in reaction to Tuesday’s UK Consumer Price Index (CPI) results, the Pound finally gained some solid ground as investors digested a surprisingly strong UK job market report from June.

June’s UK job data beat expectations in most major prints. The UK unemployment rate unexpectedly improved from 4.5% to 4.4%, its best rate since 1975. On top if this, the employment change was a better-than-expected 125k.

Investors were most relieved about Britain’s latest wage growth results however.

Wages were forecast to come in at 2% excluding bonuses and 1.8% with bonuses, but they improved to 2.1% in both prints. The previous bonuses print was revised higher too, from 1.8% to 1.9%.

According to Ipek Ozkardeskaya, senior market analyst from London Capital Group;

‘Although, the divergence between the price and wages growth will likely continue weighing on British households’ purchasing power and cool down the inflationary pressures, the Bank of England (BoE) hawks will remain alert on the economic data as long as the rates remain at the historical low levels. The pound-bulls came back in charge following the solid wages growth.’

July’s UK jobless claims results impressed too. Analysts expected 3.7k new jobless claims to be made last month, but they actually dropped by -4.2k.

Overall, Sterling saw its first notable boost in weeks, though Bank of England (BoE) tightening speculation is still light due to this week’s underwhelming UK inflation report.

EUR/GBP Forecast: UK Retail and Eurozone Inflation Ahead

There’s still more notable Eurozone and UK data due before the week is up, as key data will be published on Thursday.

First up is Britain’s July retail sales report.

Analysts forecast that UK retail sales will slow from 0.6% to 0.2% month-on-month and from 2.9% to 1.4% year-on-year.

This slowdown would be due to Britain’s pay squeeze. As UK inflation surged and wage growth trailed behind this year, real wages fell and have weakened the purchase power of citizens.

As a result, if UK retail sales beat expectations it will increase hopes that the pay squeeze is not impacting consumer activity as heavily as feared, which would be a plus for UK growth.

The Eurozone’s final July inflation report will also be published on Thursday. Last week’s inflation stats from Germany, France, Italy and Spain all met projections.

Eurozone inflation is forecast to contract at -0.5% month-on-month, which would dent Euro appeal if accurate. If inflation beats expectations in the bloc though, demand for the Euro could strengthen towards the end of the week.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Euro Pound Forecasts