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GBP to EUR Exchange Rate Sheds Weekly Gains as UK Unemployment Rises

February 21, 2018 - Written by Ben Hughes

A disappointing UK job market report left the British Pound to Euro (GBP/EUR) exchange rate weaker on Wednesday, causing the pair to shed most of Tuesday’s gains. Bank of England (BoE) interest rate hike bets were dampened by news that Britain’s unemployment rate had unexpectedly risen.

After last week only saw GBP/EUR edge slightly higher from 1.1285 to 1.1300, the pair could be in for another week of limited movement. While GBP/EUR hit a weekly high of 1.1355 on Wednesday morning the pair trended closer to the week’s opening levels again in the afternoon.

GBP Slumps as Unemployment Data Causes Bank of England (BoE) Rate Hike Bets to Fall


Wednesday saw the publication of Britain’s anticipated job market data for the three months leading into December, and the results were mixed.

For once, the wage growth stats were among the more optimistic part of the report. Wages including bonuses remained at 2.5% as expected, but the figure excluding bonuses unexpectedly improved to 2.5% too, beating the forecast 2.4%.

Instead, investors were more concerned by Britain’s latest unemployment rate, which unexpectedly worsened from 4.3% to 4.4% in the three months into December.

It was the first rise in unemployment in almost two years and the worst rise in almost five years. As a result, many Pound investors began to doubt that the Bank of England (BoE) would be willing to hike UK interest rates again as soon as May.

According to Craig Erlam, senior market analyst from OANDA;

‘Sterling is coming under a bit of pressure this morning after UK jobs data for the three months to December showed wages still growing at a moderate pace and unemployment ticking up to 4.4%.
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While a higher reading on wage growth may have triggered a more bullish response from the Pound, the data turned out to be quite insignificant as it’s unlikely to change the views at the Bank of England.’


However, while this news caused the Pound to weaken on Wednesday its losses were limited in the afternoon, as Bank of England (BoE) officials indicated during a testimony to the UK Treasury Committee that UK interest rates may need to rise at a faster pace than previously expected.

Overall though, market uncertainty about Britain’s economic outlook amid recent mixed data kept investors from being too hawkish on BoE interest rate hike bets and this kept the Pound away from its best levels.

EUR Gains Limited as Eurozone PMIs Fall Short of Expectations

The Euro may have done a better job of pushing GBP/EUR down to the week’s opening levels on Wednesday, if the latest Eurozone ecostats had been more impressive.

Instead, Markit’s February PMI projections for the Eurozone fell short of market expectations in all major prints.

All of Germany’s PMIs came in lower than forecast, including manufacturing, which still printed a strong projection of 60.3.

As a result of most PMIs falling short, the Eurozone figures also disappointed. Manufacturing came in at 58.5, services at 56.7 and the overall composite print fell from 58.8 to 57.5.

The data indicated that the Eurozone’s economic activity was slowing more than expected, although the PMIs were still generally high.

GBP/EUR Forecast: UK Growth Projections and German Business Confidence in Focus


Thursday will be another busy day for Pound to Euro investors, as major UK growth projections will be published.

Britain’s second Q4 2017 Gross Domestic Product (GDP) projections are expected to accelerate from 0.4% to 0.5% quarter-on-quarter, but slow from 1.7% to 1.5% year-on-year.

If UK growth beats expectations, markets may become more confident that Britain’s economy is resilient amid the Brexit process. This could help the Pound to Euro exchange rate hold near its weekly highs.

UK business investment projections for Q4 could also influence Pound movement on Thursday.

Multiple Eurozone ecostats will be published throughout the day too, including French business confidence and inflation stats, as well as Ifo’s February business confidence survey for Germany.

Towards the end of the week, Eurozone inflation is likely to take focus again for GBP/EUR trade as January’s final inflation results for the bloc will be published on Friday.

If the Eurozone inflation data beats expectations, speculation of a more hawkish European Central Bank (ECB) is likely to flare up.
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