GBP/EUR Exchange Rate Retreats from 11-Month Best

July 21, 2024 - Written by Tim Boyer

STORY LINK GBP/EUR Exchange Rate Retreats from 11-Month Best

The Pound to Euro (GBP/EUR) exchange rate posted a fresh 11-month high just below 1.1930 on Wednesday, but was unable to hold the gains and retreated to just below 1.1900 after the latest UK data as markets continue to debate the outlook for UK interest rates.

The headline labour-market data was in line with expectations as the unemployment rate held at 4.4%, the highest reading since October 2021.

Provisionally, there was a reported 16,000 increase in payrolls for June after a revised 54,000 gain the previous month which suggested that employment trends remain firm.

There was, however, a further decline in vacancies for the month.

The headline increase in average earnings slowed to 5.7% from 6.0% previously, in line with consensus forecasts, while the underlying increase in earnings declined to 5.7% from 5.9%.

Liz McKeown, ONS director of economic statistics, commented; “We continue to see overall some signs of a cooling in the labour market, with the growth in the number of employees on the payroll weakening over the medium term and unemployment gradually increasing."

The slowdown in wages growth will boost confidence that inflation pressures from the labour market will continue to ease slightly, but there will still be concerns that growth is too high to be compatible with the 2% Bank of England inflation target, especially given the focus on services-sector inflation.

PwC economist Jake Finney commented that the latest labour market data “continues to be more awkward for the Bank of England than the inflation data”.

He said: “The labour market is clearly cooling - with unemployment rising and vacancies falling - but pay growth still remains elevated at 5.7pc, way in excess of the circa 3pc level that is considered to be consistent with the 2pc inflation target. This still remains one of the largest potential barriers to an August rate cut.”

According to Capital Economics UK economist Ashley Webb; “we have changed our forecast for the timing of the first interest rate cut from 5.25% from August to September, although it is a close call.”

In contrast, Sanjay Raja, chief UK economist at Deutsche Bank still sees the potential for an August move; “All up, while it was ALWAYS going to be a close call, today’s data should keep an August rate cut on the table.”

The ECB will announce its latest policy decision on Thursday with very strong expectations that interest rates will be held at 4.25%.

Assuming no change in rates, guidance will be crucial for the Euro, although President Lagarde is unlikely to provide clear guidance.

According to ING, near-term Euro rallies will be sold; “There are some modest upside risks for the euro in the very near term, as some degree of acknowledgement for the slower inflation decline may offer some support. Once again, we don’t think that should last.”

GBP/EUR will gain if there is dovish rhetoric.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts