GBP/EUR exchange rate midweek update: pound slips below 1.17 against euro amid rising UK unemployment
Slowing UK wage growth weighed on the pound after the figures confirmed the BoE's view that inflationary pressures are easing in the economy.
(13/03/2024)
A data lull in the UK and the Eurozone caused the GBP/EUR exchange rate to edge lower on Monday, with the single currency supported by a risk-on mood and uncertainty ahead of key US data.
Attention turned to Tuesday’s employment report from the UK economy and its potential to perpetuate the Bank of England’s (BoE) hawkish tendencies amid sticky inflation.
Speaking on Monday, BoE policymaker Catherine Mann stressed that the economy is a way off inflation pressures being consistent with the central bank’s 2% target.
“We have a long way to go on both of them (services and goods inflation), We're nowhere near the historical relationship between services and goods that is consistent with the headline at 2%.”
An unexpected increase in UK unemployment caused the pound to euro exchange rate to slip below the 1.17 benchmark on Tuesday.
The number of unemployed workers in the UK rose in the three months leading to January, from 3.8% to 3.9%. Average earnings (excluding bonuses) also surprised investors by easing from 6.2% to 6.1% during the same period.
The jobs report raised investor bets on BoE interest rate cuts, with economists now predicting a loosening of policy in June rather than August, which undermined pound sentiment.
Central bank rate cut speculation also weighed on the euro after Germany’s latest consumer prices print showed inflation in the Eurozone’s largest economy eased in February to 2.7%, in line with initial estimates – the lowest inflation level in Germany since June 2021.
The GBP/EUR exchange rate meandered in a narrow range between 1.17 and 1.16 on Wednesday. The pair failed to gain traction despite signs of improving UK economic growth.
Any concerns that the UK economy will experience a prolonged recession were eased by GDP data for January that showed a 0.2% growth in economic activity, in line with forecasts.
The euro was shackled by downbeat industrial production data from the Eurozone. Production in the region nosedived by an unexpected 3.2% in January, well below forecasts of a 1.5% drop – touching its lowest levels since March 2023 and clouding the bloc’s economic outlook.
Looking ahead
Investors will be monitoring a chorus of speeches from European Central Bank officials on Thursday and Friday for clues about future interest rate cuts in the bloc.
The outcome of Consumer Inflation Expectations from the BoE on Friday could support or dampen the case for rate cuts in the UK.