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Euro to Pound Exchange Rate Could Advance This Year if UK Stats Disappoint During Brexit

Pound Sterling Currency Forecast

Political and economic concerns remain a heavy weight on Euro trade. However, this week’s UK data has indicated that it may be Britain’s economy that struggles the most this year.

Wednesday saw the publication of Britain’s latest labour reports. While the unemployment rate remained at 4.8% for the three months into December as expected, wage figures disappointed.

Wages including bonus fell from 2.8% to 2.6% despite being expected to remain at 2.8%. The print excluding bonuses performed similarly and came in at 2.6%, failing to hold at 2.7%.

The rest of the report was optimistic. The change in employment for the three months into December was better than expected at 37k.

As for jobless claims, the number of new jobless claims in January unexpectedly fell, while the jobless claims rate dropped to 2.1%.

Investors focused on the poor wage growth however. Research from The Joseph Rowntree Foundation warned that, despite a solid unemployment rate, millions of Britons were not making enough money to live adequately. This increased investor fears that the surge in consumer prices would lead to slower UK growth during the Brexit process.

Tuesday’s session saw the publication of UK inflation results. While inflation came in lower than expected in January, it still indicated that consumer prices were surging in 2017. Many analysts believe UK inflation could reach over 3% this year.

GBP traders were disappointed that UK inflation would seemingly not be strong enough to pressure the Bank of England (BoE) to hike UK interest rates any time soon. However, they are now also worried that UK wage growth will not be able to keep up with inflation, squeezing UK citizen incomes even more-so.

If this trend continues, the Pound is unlikely to see an improvement in demand in the mid to long-term, especially as the UK Government is set to begin the Brexit process in March.

Long-term weakness in the Pound will make it easier for the Euro to hold its ground. Investors are concerned that Eurozone political uncertainty could damage the Euro this year.

While Eurozone growth remains solid and looks to continue improving, fears are rising that nationalist politics could pull the bloc apart.

This week, EUR traders have become increasingly concerned that the wave of populism from last year’s Brexit and Trump votes could spread across the Eurozone.

Nations including France, The Netherlands and Germany may be withdrawn from the Eurozone if nationalist parties win this year’s elections in those countries.

This has been perceived as the largest threat to the Euro itself. On the other hand, if the wave of populism ebbs then the Euro is likely to see solid gains against the Pound this year.

 

At the time of writing, the Euro to Pound exchange rate trended in the region of 0.84, while the Pound to Euro exchange rate traded at 1.17.