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Pound Euro Exchange Rate Slides as UK Unemployment Climbs

June 14, 2022 - Written by John Cameron

Pound Euro (GBP/EUR) Exchange Rate Falls amid NI Protocol Fears

The Pound Euro (GBP/EUR) exchange rate is slipping lower today. Disappointing UK unemployment figures may be limiting gains for the currency pair today, as well as concerns over the Northern Ireland Protocol. A rise to Germany’s May inflation figures may also be pulling the exchange rate lower. On the other hand, a return of risk appetite may be helping to limit any major losses for GBP/EUR.

At time of writing the GBP/EUR exchange rate is at around €1.1623, which is down roughly -0.3% from this morning’s opening figures.

Pound (GBP) Edges Higher despite Disappointing Employment Data

The Pound (GBP) is seeing mixed fortunes today, edging higher against some of its rivals today amid a return of global risk appetite. The recovery in the currency could also be a correction after the Pound’s losses on Monday.

Major gains for Sterling may be limited by signs of a cooling labour market as well as a drop in wage growth, however. Additionally, heightened prospects of a legal between the UK & EU may be weighing on GBP today.

Today’s poor employment figures may be tempering gains for GBP after figures showed unemployment continuing to climb. The UK’s jobless rate rose for the first time since 2020 with the number of job vacancies rising to fresh records of 1.3M. The figures indicate that the country’s post-pandemic recovery is slowing.

Signs of a cooling labour market may be limiting bets on the currency ahead of Thursday’s interest rate decision from the Bank of England (BoE). The fastest fall to pay growth in more than a decade may also be reducing expectations of action from the central bank. Annual wage growth shrank by 3.4% in April amid continually soaring prices.

Tony Wilson, director of the Institute for Employment Studies, said:

‘Despite the tightest labour market on record, nominal pay is broadly flat meaning that rocketing inflation is leading to the largest cuts in real pay in at least two decades.’

The prospect of worsening relations between the UK and the EU could also be pulling GBP lower today. Reports indicate that the EU is ready to launch legal action against the UK in the coming weeks. The moves come as the UK seeks to pass legislation enabling it to scrap elements of the Northern Ireland Protocol.

Euro (EUR) Climbs as German Inflation Prompts ECB Rate Hike Bets

The Euro is making steady gains against its competitors today. Strong German inflation figures may be helping to boost the single currency today.

The final reading of inflation figures for May saw inflation in Germany hit its new record highs. Price increases for energy, fuel, food, and other commodities have all continued to rise in recent months. Fuel prices alone rose by 41% in May.

The figures may also be pushing the Euro higher amid hawkish expectations for future rate hikes from the European Central Bank (ECB). ECB President Christine Lagarde confirmed last week that the central bank would be enacting a 0.25% rate hike in July. Markets are hoping that the high inflation will prompt the central bank to hike rates more aggressively in the coming months amid hawkish signals from ECB policymakers.

Economic sentiment in Germany staged a mild recovery this month, which in turn could help the Euro to make further gains today.

GBP/EUR Exchange Rate Forecast: Will BoE Hikes Rates as Forecast?

Looking to the week ahead for the Pound (GBP), investors will be focused on Thursday’s interest rate decision from the BoE. The central bank is largely expected to hike rates by 0.25%, although today’s employment data could see expectations of any more aggressive action pared back.

For the Euro (EUR), the final reading for May’s inflation figures for the Eurozone on Friday could also push the currency higher if they rise as forecast.

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