Pound Euro (GBP/EUR) Exchange Rate Rangebound as Eurozone Unemployment Remains at Record-Low

January 9, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Rangebound as Eurozone Unemployment Remains at Record-Low

Pound Euro (GBP/EUR) Exchange Rate Trends Sideways amid Record-Low Eurozone Unemployment

The Pound Euro (GBP/EUR) exchange rate traded within a narrow range on Monday. Record-low Eurozone unemployment prevented the currency pair from making any substantial gains. On the other hand, market bets on further interest rate hikes from the Bank of England (BoE) underpinned GBP/EUR.

At time of writing the GBP/EUR exchange rate was at around €1.1361, which was virtually unchanged from that morning’s opening figures.

Euro (EUR) Edges Lower Despite Tight Eurozone Labour Market

The Euro (EUR) slipped against many of its peers on Monday. A risk-on market mood pushed the single currency lower against its riskier rivals.

The latest investor morale figures also kept pressure on the Euro. Whilst the index rose for its third consecutive month in January, the figures remained in negative territory of -17.5.

On the other hand, the single currency saw gains against safer currencies after the latest Eurozone unemployment figures. Unemployment remained at the record-low of 6.5% in November, pointing to further interest rate hikes from the European Central Bank (ECB).

An above-forecast rise in German industrial production also lent support to the Euro on Monday. November’s production figures rose by 0.2% amid lower energy prices.

Franziska Palmas, senior Europe economist at Capital Economics, said:

‘The recent slump in gas prices should help energy-intensive firms, but the drag on output from past rate hikes and slowing demand is likely to intensify in the coming months.’

Pound (GBP) Firms amid BoE Rate Hike Bets

The Pound (GBP) edged higher against its safer rivals amid a risk-on mood on Monday. The healthy risk appetite kept pressure on Sterling against its riskier peers, however.

Predictions of further interest rate hikes from the Bank of England (BoE) also lent support to the Pound. Moody Analytics latest forecasts pointed to a 50bps interest rate hike from the BoE in February and March.

Moody’s Analytics said:

‘With CPI inflation falling to 10.7% in November from 11.1% there is now greater certainty that October likely marked the peak. However, December’s CFO survey adds to the evidence, also apparent in service sector inflation and in private sector wage growth, that domestically generated price pressures are developing persistence.’

Gains for the Pound were limited by worrying news for UK businesses, however. Reports on Monday indicated that UK Chancellor Jeremy Hunt would soon be announcing a cut to energy bill support for UK businesses. The Treasury is expected to implement a discount on wholesale prices.

Predictions that UK household incomes could see a drastic slump in 2023 also weighed on the Pound. The Resolution Foundation thinktank released their latest forecasts on Monday that pointed to a roughly 3% fall in household incomes this financial year.

GBP/EUR Exchange Rate Forecast: Will UK GDP Figures Add to Recession Predictions and Weigh on Pound?

Looking to the week ahead for the Pound, a predicted slowdown in December’s retail sales could weigh on Sterling. The British Retail Consortium’s (BRC) latest sales figures are expected to still rise however, which limit any potential negative effects.

Friday’s GDP data could be a significant driver for movement in the Pound this week. November’s GDP figures are expected to indicate a contraction in the UK’s economy. The data could see the Pound plummet if it adds to predictions of a sharp recession for the UK in 2023.

For the Euro, expected positive signs from the Eurozone’s manufacturing sector could boost EUR. November’s industrial production figures are expected to tick higher on Friday despite the energy crisis and potential recession.
Also on Friday, a narrowing of the trading bloc’s trade deficit could also bolster the Euro if November’s figures print as forecast.

Finally, a slowdown in Germany’s full year GDP growth figures on Friday could prompt mixed movement in the Euro. Whilst 2022’s figures are forecast to slow, the expansion in the country’s economy have a positive effect on EUR.

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TAGS: Pound Euro Forecasts