Pound Euro Exchange Rate News: GBP/EUR Traded Erratically amid Mixed UK Jobs Data

December 13, 2022 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Traded Erratically amid Mixed UK Jobs Data

Pound (GBP) Undermined by Climbing Unemployment

The Pound (GBP) saw mixed success on Tuesday in the wake of a flurry of jobs data. Overall, investors remained concerned with the labour market as the unemployment figure edged up.

The unemployment figure increased for the third consecutive month to 3.7%, but still remains at historical lows. At surface level, the labour market looks to be healthy, and relatively tight. Payrolled employees increased by 100,000 in November whilst annualised pay growth crept above 6%. However, many economists fear a turning point in the labour market. Not only did unemployment rose, but job vacancies fell by 65,000.

The number of people claiming unemployment benefits also rose substantially by 30,500, the biggest jump in almost two years, and is close to ten times the predicted figure. Despite the resilience the labour market has shown, the cracks are beginning to show. With the UK heading into a lengthy recession, a wobbly labour market could provide the Bank of England (BoE) with more headaches as they navigate the tripwire between inflationary pressures and economic growth.

Meanwhile, wage growth continues its rise in the three months to October. Average earnings, not including bonuses, grew by 6.1%. Real wages, however, continue to lag behind inflation and fell by 2.7%. The positive news from the jobs data is that wage growth continues to remain historically high, which could see further interest rate hikes from the BoE.

Elsewhere, relentless industrial action continues to weigh heavily on the UK economy, and the Pound. Frances O’Grady, along with many economists, are pointing to falling wages that has led workers to ‘breaking point’. A real pay squeeze has contributed to the cost-of-living crisis, O’Grady added:

‘Family budgets have been shredded by soaring bills and more than a decade of pay being held down. The Conservatives have presided over the longest real wage squeeze in over 200 years.

‘It’s time to reward work – not wealth. We cannot be a country where NHS and teaching staff have to use food banks, while City bankers are given unlimited bonuses.’

Euro (EUR) Soured Despite Positive German Sentiment

Meanwhile, the Euro (EUR) struggled to find a clear direction on Wednesday as surprisingly positive German sentiment failed to lift the single currency.

The latest ZEW economic sentiment index ticked slightly higher than expected, increasing to -23.3 from -36.7, the highest reading since February. The economic outlook improved modestly with the stabilization of the energy markets and a possible peak in inflationary pressures.

Elsewhere, Germany’s inflation data printed at 10%, meeting market expectations. Despite softening, the figure remains far above the European Central Bank’s (ECB) target rate of 2%. Underlying figures showed that on a monthly basis, consumer prices finally started to relent, the first decline in a year.

GBP/EUR Exchange Rate Forecast: US Inflation to Weigh on the Euro?

Looking ahead, the Pound Euro exchange rate could see further fluctuations before the day is over with the release of the headline CPI inflation for the US. With expectations of inflation softening, tempering Fed rate hike bets could cheer both GBP and EUR investors.

Elsewhere, Wednesday will see the release of the UK’s inflation figure. Market forecasts a softening of inflation, which could lead to a slowing pace of monetary tightening.

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TAGS: Pound Euro Forecasts