Pound Euro (GBP/EUR) Exchange Rate Slips as UK Job Vacancies Slide

January 10, 2023 - Written by John Cameron

STORY LINK Pound Euro (GBP/EUR) Exchange Rate Slips as UK Job Vacancies Slide

Pound Euro (GBP/EUR) Exchange Rate Falls amid Risk-Off Mood

The Pound Euro (GBP/EUR) exchange rate slipped on Tuesday. The pairing was pushed lower by a cautious market mood, as well as hawkish comments from European Central Bank (ECB) officials.

GBP/EUR found support from a rise in UK retail sales, however. Hawkish comments from Bank of England (BoE) Chief Economist Huw Pill also prevented drastic losses for the exchange rate.

At time of writing the GBP/EUR exchange rate was at around €1.1327, which was down roughly 0.2% from that morning’s opening figures.

Pound (GBP) Slips as UK Labour Market Softens

The Pound (GBP) edged lower on Tuesday amid a cautious market mood. Sterling found support from positive retail sales figures, however.

December’s sales figures from the British Retail Consortium (BRC) indicated that retail businesses saw a sales boost over the festive period.

Helen Dickinson, the BRC chief executive, warned of difficulties for the sector in 2023 however:

‘Retail faces further headwinds in 2023. Cost pressures show little immediate signs of waning, and consumer spending will be further constrained by increasing living costs.’

These concerns were added to by news that the UK government would be cutting its energy bill support for many businesses from March.

Evidence of a softer labour market in the UK also added to the Pound’s downturn on Tuesday. Job vacancies fell to 53.0 in December, its lowest point since February 2021.

The survey, conducted by the Recruitment and Employment Confederation trade body and accountants KPMG, also pointed to slowing wage growth. The data led to some speculation that the Bank of England (BoE) could slow its pace of policy tightening.

On the other hand, recent hawkish comments from BoE Chief Economist Huw Pill kept bets on further interest rate hikes buoyed. Pill signalled that inflation was likely to remain high, increasing the need for further rate hikes.

Euro (EUR) Bolstered by Hawkish ECB Comments

The Euro (EUR) firmed against its rivals on Tuesday. EUR benefitted from a cautious market mood as well as hawkish comments from European Central Bank (ECB) officials.

Speaking on Tuesday, ECB board member Isabel Schnabel said:

‘We judge that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to our 2% medium-term target.’

The Euro’s gains were capped by further developments in the Russia-Ukraine conflict, however. Russian forces staged a renewed offensive in Eastern Ukraine as reports indicated the UK may be set to deliver Challenger 2 tanks to Ukrainian forces.

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

Looking to the rest of the week for the Pound, a range of data releases on Friday could see GBP slide lower if they print as forecast. November’s GDP data is expected to confirm a contraction in the UK’s economy. Sterling could suffer if the figures add to expectations of a deep recession for the UK in 2023.

Also on Friday, fresh output figures for the UK’s manufacturing sector could also keep pressure on the Pound. Manufacturing production is expected to slip in November after unexpected growth in October.

The prospect of further industrial action could also keep pressure on the Pound over the rest of the week. Talks between government ministers and union heads have provided little meaningful progress thus far.

Friday will also bring the remaining data releases for the Euro. A forecast narrowing in the Eurozone’s trade deficit in November could lend support to EUR if trade figures print as forecast.

Additionally, a predicted recovery in Eurozone industrial production in November could boost the Euro.

Finally for the Euro, full year GDP growth data for Germany could cap any potential gains for the single currency. Whilst the country’s economy is expected to have expanded in 2022, the rate of growth is forecast to have slowed significantly.

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