Pound V euro: GBP exchange rate against EUR down as unemployment rises
THE pound to euro exchange rate has fallen to €1.132 this morning, effectively erasing any gains seen over Tuesday. The pound has also seen losses in other pairings, having slipped against the US dollar and the New Zealand dollar.
This poor performance is down to a negative response to the UK unemployment rate, which grew from 4.3 per cent to 4.4 per cent in December.
The jobless rate growth was unexpected, and as such has cancelled out any positive impacts from better-than-expected average earnings data.
This was the first rise in the jobless rate since February 2016.
Wage growth, excluding bonuses, rose from 2.3 per cent to 2.5 per cent in December, although the reading including bonus payments remained static at 2.5 per cent.
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While wage growth is good news for UK households, the pace of inflation remains above the rate of average earnings growth, so wage squeeze conditions persist.
Looking at national wage growth in a wider context, ING Developed Markets Economist James Smith said: “The economic outlook remains mixed, input costs continue to rise, and uncertainty surrounding Brexit remains elevated.
“This could keep a lid on wage growth over the next few months, although admittedly the latest [Bank of England] survey suggests these factors will be less of a constraint this year.
“The reality is probably a mixture of all these factors, although we agree the recent evidence suggests the positives are outweighing the negatives.
The economic outlook remains mixed, input costs continue to rise
“We'd still caution that it is early days, and that the Bank of England's 3 per cent wage growth forecast for this year still seems a bit of a tall order.
“But when it comes to interest rates, we doubt the data over the next couple of months will prompt policymakers to rethink their positive outlook for pay.”
While the morning’s Eurozone data has been similarly negative, the euro has advanced against a weaker pound today.
Eurozone PMI activity readings have indicated slowing levels in the services sector and manufacturing sector activity, but the euro has remained more desirable than the pound overall.
After today’s poor pound trading, the GBP/EUR exchange rate could remain subdued on Thursday when UK GDP growth rate stats are released.
The Bank of England explains the exchange rate
Second estimates for Q4 2017 are predicted to show a downgrade in year-on-year GDP growth, which could trigger a pound to euro exchange rate slide.
On the other hand, if UK business investment estimates show rising spending then any GDP-linked damage to the pound could be minimised.
Euro traders will also have high-impact data to watch out for on Thursday with the afternoon release of European Central Bank (ECB) monetary policy meeting accounts.
The ECB isn’t expected to overhaul monetary policy in the coming months, but even the slightest hint of policy tightening plans could trigger a euro to pound rally.
