Pound-to-Euro Rate Holds 1.16 as UK Jobs Data Sends Mixed Signals

– Written by


Frank Davies

STORY LINK Pound-to-Euro Rate Holds 1.16 as UK Jobs Data Sends Mixed Signals

The Pound Euro (GBP/EUR) exchange rate was muted on Tuesday as markets considered the latest UK employment figures alongside Germany’s updated ZEW economic sentiment index.

At the time of writing, GBP/EUR was trading at €1.1681, having recovered from an earlier low of €1.1672.

The Pound (GBP) struggled on Tuesday as markets weighed the latest UK labour market figures and what they could mean for the economy.

The figures showed little overall change in the British jobs market during the three months to July.

Unemployment held steady rather than increasing as forecast, while wage growth came in line with expectations.

However, the headline numbers did not tell the whole story. Some economists pointed to signs beneath the surface that suggested the labour market could be weaker than the figures initially indicated.

Sterling was also pressured by higher UK bond yields.

Concerns persisted that increased government borrowing costs could add to the prospect of tax increases and spending reductions, while creating another potential drag on economic growth.

The Euro (EUR) initially made gains against the Pound before surrendering some ground later in the morning as weaker-than-expected German data put pressure on the single currency.

Germany’s latest ZEW economic sentiment index came in at 34.7 for September, below the forecast of 37.

Although the reading improved slightly from August’s 34.2, the smaller-than-expected rise provided limited support for EUR.

The result raised questions over the strength of Germany’s economic outlook, leaving the Euro struggling to build on its earlier gains against Sterling.

Near-Term GBP/EUR Forecast: UK Inflation Data Could Boost Sterling

Looking to Wednesday, the Pound could find some support if the latest UK consumer price index points to a stronger-than-expected rise in inflation.

Headline CPI is forecast to have increased from 2.9% to 3.1% in August, while core inflation is expected to have risen slightly from 2.6% to 2.7%.

An acceleration, particularly as these figures predate this month’s steep increase in oil prices, could strengthen expectations that the Bank of England (BoE) may have to consider higher interest rates sooner than previously thought.

However, if inflation only rises modestly, the data may do little to alter expectations for the BoE’s next decision, with the central bank due to announce its latest interest rate decision on Thursday.

For the Euro, meanwhile, the release of Eurozone industrial production figures could create some headwinds.

Output is expected to have fallen by 0.4% in July, potentially adding pressure to the common currency.

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