Pound Euro Exchange Rate News: GBP/EUR Wavered amid Faster UK Wage Growth

April 18, 2023 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate News: GBP/EUR Wavered amid Faster UK Wage Growth

Pound (GBP) Supported by Strong Labour Market Data

The Pound (GBP) experienced modest success against many of its peers on Tuesday in the wake of stronger-than-expected jobs data. Despite unemployment edging higher than expected to 3.8%, faster wage growth and unexpected employment growth cheered investors.

An unprecedented number of people joined the workforce in March, as 169k were employed, against expectations of a 50k increase. The improvement highlighted the largest increase in employment since April 2022.

Further cheering GBP investors were the ever-accelerating regular pay growth. Increasing by 6.6% YoY in February, annual average wages from last month were also revised to the same figure. With fears of a wage-price spiral already on the minds of the Bank of England (BoE) policymakers, further rate hike bets have elevated in the wake of the labour market data. James Smith, economist at ING, said:

‘The surprise pick-up in UK wage growth casts doubt over recent indications that pay pressures have started to ease.

‘We should caution that one month doesn’t make a trend, though a similar surprise blowout in services inflation due on Wednesday would inevitably move the dial in favour of a 25bp rate from the Bank of England next month.’

Euro (EUR) Undermined by Souring Confidence

Meanwhile, the Euro (EUR) is struggling to find a clear direction this morning as the ZEW Economic Sentiment Index surprised to the downside for both Germany and across the Eurozone.

The German index slumped to 4.1 in April, far below expectations of an increase to 15.3. Professor Achim Wambach, President of ZEW, commented on the fall:

‘Economic expectations are negatively affected by several factors. Experts expect banks to be more cautious in granting loans. The still high inflation rates and the internationally restrictive monetary policy are also weighing on the economy.’

However, preventing further losses could be the negative correlation the Euro shares with the US Dollar. With an upbeat market mood in the wake of a rebounding Chinese economy, the ‘Greenback’ slumped, which could be providing the Euro much-needed support.

GBP/EUR Exchange Rate Forecast: UK Inflation to Boost the Pound?

Looking ahead, the Pound Euro exchange rate could see further movement with the release of the latest headline CPI. Despite an expected softening, following the surprise increase in last month, the inflation rate remains far too high. The BoE could still continue their tightening cycle, and with the recent hawkish tone from the central bank, Sterling could climb higher.

Meanwhile, the Euro will be looking towards the final reading of inflation in the Eurozone. If the final figure differs from the preliminary reading, the single currency could fluctuate. A softer reading could pare rate hike bets, whereas an uptick could spur the Euro.

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TAGS: Pound Euro Forecasts