– Written by
David Woodsmith
STORY LINK Pound to Euro Rate Slips as UK Jobs Data Disappoints
The Pound to Euro (GBP/EUR) exchange rate weakened on Tuesday after the latest UK labour-market data pointed to a further cooling in employment conditions.
At the time of writing, GBP/EUR was trading at around €1.1684, down approximately 0.1% on the day and below Monday’s close near €1.1697.
The Pound (GBP) came under modest pressure after official figures showed that the UK labour market continued to lose momentum.
The unemployment rate held at 4.9% in the three months to June, above consensus forecasts for a decline to 4.8%.
Job vacancies fell to 707,000 in the three months to July, their lowest level since 2021, while the number of payrolled employees declined by an estimated 13,000 in July.
Private-sector wage growth also slowed to 2.8% year-on-year, its weakest rate since late 2020.
The figures reduced pressure on the Bank of England to raise interest rates in the near term, limiting demand for Sterling.
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Markets are still pricing some additional BoE tightening by the end of the year, but the softer labour data reinforced expectations that policymakers can remain patient unless inflation pressures accelerate sharply.
The Euro (EUR) received support after Germany’s latest ZEW economic sentiment index comfortably exceeded expectations.
The index climbed from 26.3 in July to 34.2 in August, well above forecasts for a reading of 30.0.
The assessment of current economic conditions also improved sharply, rising from -77.6 to -61.1.
The stronger figures suggested confidence in the Eurozone’s largest economy is improving despite elevated energy prices, Middle East tensions and disruption caused by exceptionally low water levels on the Rhine.
Recent strength in German export orders and expectations that government infrastructure spending will support activity also helped lift sentiment.
The Euro’s gains were nevertheless restrained by another increase in oil prices, with Brent crude climbing back towards $90 per barrel as hopes for a lasting US-Iran settlement faded.
Near-Term GBP/EUR Forecast: UK Inflation Takes Centre Stage
Looking ahead, Wednesday’s UK inflation figures are likely to provide the next major catalyst for the Pound to Euro exchange rate.
The labour-market figures have reduced the urgency for another Bank of England interest-rate increase, placing even greater importance on the inflation release.
A stronger-than-expected CPI reading could revive expectations for additional monetary tightening and allow Sterling to recover.
Conversely, softer inflation would reinforce the message from Tuesday’s employment report that domestic price pressures are easing and could place further pressure on the Pound.
For the Euro, investors will continue to assess the improving German economic outlook alongside the threat posed by higher energy prices.
GBP/EUR remains close to the middle of its recent August range.
Initial support is located around €1.1650, while a recovery above €1.1700 would bring the recent highs around €1.1720 back into focus.
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TAGS: Pound Euro Forecasts