Pound Euro Exchange Rate News: GBP/EUR Wavered on Mixed UK Employment Data

August 16, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavered on Mixed UK Employment Data

Pound (GBP) Fluctuated on Mixed Employment Data

The Pound (GBP) strengthened modestly on positive unemployment data but soon wavered as the rest of the labour market overview printed to mixed results.

Unemployment rate held steady at 3.8%, for the third consecutive month as expected. Slightly higher than the first three months of 2022 by 0.1%, but still below pre-pandemic levels. Those collecting unemployment benefits fell by 10,500, following a 26,000 drop in June. Marking the 17th consecutive month of declines in claimants and a 47-year low unemployment suggests a robust labour market. Chancellor of the Exchequer Nahid Zahawi, said of the data:

‘Today’s stats demonstrate that the jobs market is in a strong position, with unemployment lower than at almost any point in the past 40 years – good news in what I know are difficult times for people. This highlights the resilience of the UK economy and the fantastic businesses who are creating new jobs across the country.

Although there are no easy solutions to the cost-of-living pressures people are facing, we are providing help where we can. We are delivering a £37bn package of help for households through cash grants and tax cuts so people can keep more of what they earn.’

However, more concerning news was that that real pay fell by a record 3%, as wages fail to keep up with soaring inflation. The growth in regular pay, excluding bonuses, dropped by 3%, the biggest fall since records began in 2001.

Keeping a lid on any meaningful gains for Sterling is that the UK is very much still headed towards a recession. With the cost-of-living crisis weighing heavy, compounded by falling real wages, the Pound may struggle for further demand.

Euro (EUR) Failed to Find Clear Direction amid Fading Economic Sentiment

The Euro (EUR) struggled for demand on Tuesday as the Eurozone’s largest economy saw another month of declining sentiment. The ZEW Indicator of Economic Sentiment for Germany slipped to -55.3, below market expectations and the lowest level since October 2008. High inflation rates and soaring energy prices are expected to cause further decline across the Eurozone. Dr Michael Schröder, head of the ZEW financial market survey, said of the survey:

‘The financial market experts therefore expect a further decline in the already weak economic growth in Germany. The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector.’

Lending some moderate support to the Euro is positive news on gas storage facilities in Europe. Analysts at ING claim gas prices are finally slowing after hitting the highest levels in almost six months, but gas storage continues to climb higher. ING said:

‘However, European gas storage continues to edge higher, reaching almost 75%, which is in line with the five-year average and well above the 62% seen at this stage last year.

‘Assuming there are no further reductions in Russian gas flows, the EU should hit its target of having gas storage 80% full by 1 November.’

Elsewhere, global growth concerns are returning to the fray as geopolitical tensions between US and China continue, as well as fears of a heatwave in China is causing issues with hydroelectric power, threatening factory productions once again.

GBP/EUR Exchange Rate Forecast: Soaring UK Inflation to Sink the Pound?

As the cost-of-living crisis worsens in the UK, all eyes will be on the inflation rate for July. With market expectations of a fresh 40-year high of 9.8%, the Pound could come under renewed pressure.

Elsewhere, GDP growth and employment data for the Euro area could boost the Euro if forecasts print true. GDP is expected to have grown in the second quarter, a much-needed boost for the single currency amid recession and energy security fears.

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TAGS: Pound Euro Forecasts