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GBP to EUR Exchange Rate Avoids Further Losses as UK Wages Beat Forecasts

October 18, 2017 - Written by Toni Johnson

Brexit concerns and a slight drop in Bank of England (BoE) interest rate hike bets caused the British Pound to Euro exchange rate to fall during Tuesday trade. The pair avoided further losses this morning as the latest UK wage data beat expectations.

Political uncertainties caused the GBP/EUR exchange rate to fluctuate earlier in the week after opening at the level of 1.1238. The pair briefly reached a high of 1.1284 before falling, and hit a low of 1.1196 this morning before the UK wage data came in and the pair recovered above 1.12.

GBP Trade Strengthens on Latest Wage Data

After days of Brexit concerns weighing heavily on the Pound, the British currency finally found some more solid ground to trade on during Wednesday trade as the latest UK job market report was published.

The unemployment rate remained at a 42-year-low of 4.3% as expected, despite the latest employment rate coming in at only 94k, lower than the expected 150k.

The main event for Pound investors however, was the latest wage growth results.

UK average earnings for the three months into August were forecast to come in at 2% excluding bonus and 2.1% with bonus. The results came in at 2.1% and 2.2% respectively, higher than expected in both prints.

What’s more, the previous figures were both revised higher from 2.1% to 2.2.

Overall, the report indicated that while wages still trailed well behind inflation, wages were performing better than expected. This bolstered market hopes that the Bank of England (BoE) could tighten UK monetary policy within the coming months, boosting the Pound.

Still, some analysts remain concerned that the ongoing UK pay squeeze could eventually impact consumer sentiment. According to Frances O’Grady from the TUC;

‘Pay packets are taking a hammering. This is the sixth month in a row that prices have risen faster than wages.

“Britain desperately needs a pay rise. Working people are earning less today (in real-terms) than a decade ago.

“The Chancellor must help struggling families when he gives his Budget next month. This means ditching the artificial pay restrictions on nurses, midwives and other public sector workers. And investing in jobs that people can live on.’

EUR Strength Limited on ECB Uncertainty

The Euro has been unable to really capitalise on the recently volatile Pound, as concerns about Eurozone political developments and the mid to long-term plans of the European Central Bank (ECB) have weighed on Euro demand.

Tensions between Spain and Catalonia have flared up again in recent sessions. Spain arrested two Catalonian separatists on Tuesday, sparking protests in Catalonia.

Currently, investors are waiting for the next actions from Spain’s Prime Minister Mariano Rajoy, who indicated that Spain could take direct legal control over Catalonia if Catalonia continues to threaten the idea of independence.

On top of political concerns, the Eurozone’s latest ecostats have failed to impress. Eurozone inflation met expectations in September and ZEW’s October economic sentiment survey disappointed.

Mutterings that the European Central Bank could unwind most of its quantitative easing (QE) but leave some in place throughout 2018 due to concerns about the Euro’s strength have also weighed on the shared currency.

GBP/EUR Forecast: UK Retail Sales Ahead

The Pound could get another boost in Demand tomorrow, if September’s UK retail sales results beat expectations.

Currently, analysts expect UK retail sales to have worsened, from 2.4% to 2.1% year-on-year and from 1% to -0.1% month-on-month.

If the retail sales stats beat expectations, investors could become more confident that Britain’s consumers are confident despite the pay squeeze. This would make Sterling more appealing towards the end of the week.

Poor UK retail data could have the opposite effect though. It could worsen concerns that Britain’s economy will not be as resilient as hoped due to the pay squeeze.

Eurozone data is unlikely to influence GBP/EUR much in the coming days. The shared currency may trend within a tight range over the coming week as the European Central Bank’s (ECB) October policy decision draws ever closer.
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