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Euro to Pound Sterling Forecast: "Scope for Move Below 0.87" say Rabobank

November 14, 2023 - Written by John Cameron


GBP/EUR Exchange Rate: Tentative Recovery from 6-Month Lows After UK Wages Data

The Pound to Euro (GBP/EUR) exchange rate continued to recover from 6-month lows on Monday with a peak just above 1.1480.

GBP/EUR also touched 1.1490 after the UK wages data, but failed to hold the gains and settled just above 1.1475.

Rabobank considers that Euro vulnerability will be key in driving tentative net gains for GBP/EUR. It notes; “we see scope for EUR/GBP to move back below the 0.87 level on the back of weak German economic data and our house view that the Eurozone may already be in a technical recession.”

This implies GBP/EUR above 1.1500.

ING, however, expects that GBP/EUR will hit resistance close to 1.1500 unless forthcoming data is extremely weak.

There will still be an important element of caution ahead of the UK inflation data on Wednesday which is likely to have a greater impact on Bank of England expectations.

The US inflation data later on Tuesday will also have an important market impact.

According to the latest UK labour-market data, underlying wages increased 7.7% in the year to September after a revised 7.9% previously and in line with consensus forecasts.

Headline earnings increased 7.9% over the year from a revised 8.2% previously and significantly above market expectations of 7.5%.

There was an annual increase in real wages with the strongest increase for two years.

The number of workers on payrolls was reported to have increased 33,000 for October while the September data was revised to show an increase of 32,000 compared with the flash estimate of an 11,000 decline.

Vacancies declined 58,000 in the three months to October, the 16th successive decline.

The unemployment rate held at 4.2% in the three months to September.

According to ONS director of economic statistics Darren Morgan; “Our labour market figures show a largely unchanged picture, with the proportions of people who are employed, unemployed or who are neither working nor looking for a job all little changed on the previous quarter.

The number of job vacancies fell for the 16th straight month. Nevertheless, vacancies still remain well above their pre-pandemic levels.

With inflation easing in the latest quarter, real pay is now growing at its fastest rate for two years.”

Alexandra Hall-Chen, a policy advisor at the Institute of Directors commented; "The labour market remains very tight and businesses are still struggling to hire the people they need."

She noted that structural issues are still important; “Our own data shows that business leaders continue to cite skills and labour shortages as having a negative impact on their organisation, second only to more general concerns about the UK economy. Historically high levels of economic inactivity due to long-term sickness remain a cause for concern.”

According to PwC UK economist Jake Finney; "While there is some uncertainty around the accuracy of this data release, other indicators also suggest the labour market is gradually cooling, not collapsing."

ING notes some easing of supply constraints; “Multiple surveys suggest that firms are finding it easier to find staff than a year ago when skill shortages were at their most acute.”

It added; “All of that suggests the Bank’s forecast for private sector wage growth to hit 6.6% in March appears to be on track, and if anything, might be beaten on the downside. We think these figures can reach the 4-4.5% area by next summer, and that might be one of the catalysts for rate cuts to begin in August.”

According to MUFG; “We would argue that there is something in this data for both the doves and the hawks on the MPC. While labour demand is stronger in this report, there remain signs of a trend of softening labour demand in the vacancy data and the moderating wage growth.”

MUFG added; “GBP is likely to remain in a narrow trading range, albeit to the firmer side, ahead of the US CPI this afternoon and the UK CPI data tomorrow.”
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