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Pound Euro (GBP/EUR) Exchange Rate Fluctuates amid Recession Warnings for Germany

April 17, 2018 - Written by John Cameron

UK Unemployment Hits 42-Year Low – Pound (GBP) Exchange Rates Find some Support

The Pound Euro (GBP/EUR) exchange rate fluctuated on Tuesday, limited initially by a below-forecast UK wage growth report but gaining later into the day on the back of recession concerns for the bloc’s largest economy.

According to the Office for National Statistics (ONS), average weekly earnings in the UK printed at 2.8% in in three months to February, below the 3.0% that was forecast but still matching the previous period’s rate.

Moreover, this is the first time in a year that pay packets have finally grown at a faster rate than inflation – news that bodes extremely well for the state of the UK’s economy.

In other news, unemployment in the UK hit a 42-year low by printing at 4.2% in February, confounding market expectations that it would remain steady at 4.3%.

This tightening of the labour market should hopefully lead to further upward pressures on wage growth - but with this largely failing to occur in recent months markets were slightly perturbed.

Nonetheless, these figures were largely positive and primarily served to cement market expectations for a rate hike from the Bank of England (BoE) in May.

Economic Think-Tank Warns of Possible German Recession – Euro (EUR) Exchange Rates Come under Pressure

Below-forecast industrial production and poor confidence indicators have prompted an economic think-tank to raise the alarm over the possibility of a nearing recession in Germany.

According to the Macroeconomic Policy Institute (IMK), the risks of a German recession have jumped ‘markedly’ in April to 32.4% - 6.8% higher than the rise seen in March.

This puts the institute’s indicator on ‘orange’ with recent downturns in the likes of German factory orders and business confidence heavily influencing the reading.

The IMK stated:

‘Volatility in financial markets, which has been evident for several months, is now accompanied by a noticeable deterioration in sentiment and subdued production. This has recently become a typical constellation for the end phase of a cycle.

Whether such a downward spiral has already begun is currently unclear’.

This outlook has limited demand for the Euro on Tuesday, with markets concerned that if the economic performance of Germany suffers, so too will the Eurozone as a whole.

Pound Euro (GBP/EUR) Exchange Rate Forecast: UK and EU Inflation in the Spotlight

The Pound Euro (GBP/EUR) exchange rate could see significant movement tomorrow depending on the performance of the UK’s and EU’s consumer price inflation readings.

Inflation in the UK is forecast to hold at 2.7% year-on-year in March, but ease month-on-month from 0.4% to 0.3%.

This drop could spook investors slightly, but with inflation still remaining significantly above the bank’s target range, it is unlikely that it will push the BoE away from a rate hike in May.

For the bloc, markets are expecting a rise month-on-month from 0.2% to 1.0%.

This could be quite pertinent, particularly with European Central Bank (ECB) Policymaker Ewald Nowotny recently asserting that the central bank could end its bond-buying programme by the end of this year.
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