Pound Euro (GBP/EUR) Exchange Rate Retreats as UK Labour Report Fails to Impress

July 17, 2018 – Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate is trending lower today, following the release of some lacklustre wage figures from the UK.

Pound (GBP) Exchange Rate Stalls as UK Wage Growth Slows

The Pound (GBP) is sliding against the Euro (EUR) and the majority of its other peers this morning as markets reacted to the latest UK employment figures.

According to data published by the Office for National Statistics (ONS), the UK’s unemployment rate held at a 42-year low of 4.2% in May, as employment rose by a healthy 137,000.

But it was the accompanying wage figures that was the focal point of today’s data, with Sterling sentiment sliding as pay growth was revealed to have slid from 2.6% to a six-month low of 2.5% over the same period.

While this kept wage growth just ahead of inflation, preventing a fall in pay for UK workers, it appears to be failing to keep pace with the tightening of the UK labour market, which historically has helped to spur wage increases as employers fight to attract talent.

The anaemic pace of wage growth also continues to be a headache for the Bank of England (BoE), who are reluctant to tightening monetary policy when households are being forced to tighten their belts.

Some analysts even fear that combined with the recent rise in political fictions and ongoing Brexit uncertainty, the slowdown in wage growth could give reason for BoE policymakers to stay their hand next month.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said:

‘The second successive slowdown in regular pay growth is disappointing. This means that earnings growth in real terms remains in positive territory by just a small margin and so is unlikely to provide much of a boost to consumer spending power.
While we expect that interest rates will rise sooner rather than later, with earnings growth underwhelming there remains sufficient scope for the MPC to keep a rates hike on hold for longer, particularly given the current economic and political uncertainty.’

Euro (EUR) Exchange Rate Steady as all Eyes on Powell Testimony

While the Euro (EUR) is advancing against the Pound today, it is treading water against the rest of is peers as a lull in Eurozone data leaves investors to focus their attention elsewhere.

This leaves currency markets to focus on the US Dollar (USD) and upcoming congressional testimony by Federal Reserve Chairman Jerome Powell later this afternoon.

The two-day testimony is expected to see Powell discuss the Fed’s current take on interest rates, with USD investors keen to learn whether the recent surge in trade tensions between the US and China could prompt a more cautious outlook from the Fed Chair.

With Euro, US Dollar being the most traded currency pairing in the world any major shifts in the USD exchange rate can have some significant impacts on the single currency, especially on days like today were limited data leads to thin trading volumes.

GBP/EUR Exchange Rate Forecast: Will UK Inflation Figures Help to Redeem Sterling?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate could potentially rebound on Wednesday, following the release of the latest UK Consumer Price Index (CPI).

Tomorrow’s CPI figures are currently forecast to reveal that UK inflation ticked up from 2.4% to 2.6% in June, with markets bracing for a likely rise in Sterling should economists view this rise in inflation as increasing the case for the Bank of England to push forward with a rate hike next month.

Meanwhile the Eurozone will publish its out CPI figures on Wednesday, with the Euro (EUR) poised to strengthen if June’s final reading confirms inflation ticked up to 2% last month.

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TAGS: Pound Euro Forecasts