June 12, 2018 - Written by John Cameron
STORY LINK Pound Euro (GBP/EUR) Exchange Rate Trades Sideways on Mixed UK Labour Market Data
UK Wage Growth Weakens – Pound Euro (GBP/EUR) Exchange Rate Limited
The Pound Euro (GBP/EUR) exchange rate traded sideways on Tuesday, limited by a mixed round of UK labour market statistics and recurrent investor anxiety ahead of the Commons vote on whether MP’s will have a decisive say on the final Brexit deal struck with the EU.
On the data front, the Office for National Statistics (ONS) reported that basic wage growth in the UK fell from 2.6% to 2.5% in the three months to April, whilst full earnings (including bonuses) also eased from 2.9% to 2.8%.
This news boded poorly for the Pound’s future, with the Bank of England (BoE) historically using wage growth as a gauge for the state of the British economy when determining monetary policy.
Indeed, Ben Brettell, Senior Economist at Hargreaves Lansdown supported this sentiment, arguing that the disappointing figures here could limit the possibility of a rate hike occurring this summer.
‘Policymakers had been thought to be considering raising rates in August, but I still think a rate rise this year looks unlikely. The Bank will almost certainly want confirmation that the Q1 growth figure was just a blip before raising borrowing costs’.
In slightly better news, however, unemployment in the UK held at 43-year lows of 4.2%, whilst a surprising 146k new jobs were added in April.
This news helped prevent GBP/EUR from falling drastically.
Worsening German Economic Sentiment Limits Euro (EUR) Exchange Rates
The Euro also faced pressure on Tuesday, with economic sentiment in Germany falling to its lowest level since 2012.
According to the ZEW, economic sentiment in Germany plummeted to -16.1 in June, down from the previous score of -8.2 and the forecast of -14.0.
The Eurozone’s own reading also fell short of expectations by printing at -12.6, down from the previous period’s score of 2.4.
These poor readings were largely due to the recent trade disputes between Europe and the US, though concerns were also raised regarding the political turmoil in Italy and worries that their economy might suffer under the new coalition leadership.
Pound Euro (GBP/EUR) Exchange Rate Forecast: ECB, US Fed Rate Decisions on the Horizon – What can we Expect?
The Pound Euro (GBP/EUR) exchange rate could find room to climb this week as investors prepare for two key events; the US Fed’s rate decision, due tomorrow, and the European Central Bank’s (ECB) rate decision, due on Thursday.
The ECB is not expected to raise interest rates on this occasion (nor anytime in the near future), but investors are hopeful that the bank will discuss plans to end its quantitative easing scheme before the end of this year.
If a clear indication in this regard is given then we could see GBP/EUR come under pressure.
Given the recent soft data for both Q1 and Q2 in the bloc, however, it seems unlikely that the bank will take a newfound hawkish stance.
There is also the possibility that the US Fed will have some very hawkish things to say, especially if consumer price inflation rises in today’s releases.
If this occurs then we could see the US Dollar siphon demand away from the Euro, potentially giving GBP/EUR even more room to climb.
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TAGS: Pound Euro Forecasts