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Pound to Euro Exchange Rate Forecast: Is a BoE Rate Cut Still Inevitable Following Robust UK Employment Figures?

Bank of England

GBP/EUR Exchange Rate Buoyed as UK Wage Growth Beats Expectations

The Pound Euro (GBP/EUR) exchange rate is trending higher this morning in response to the UK’s stronger-than-expected employment report.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1745, edging up from today’s opening rate.

Pound (GBP) to Rally on Falling BoE Rate Cut Expectations?

The Pound (GBP) is enjoying some broad gains this morning as markets welcome the UK’s latest employment report.

According to data published by the Office for National Statistics (ONS), unemployment held at a near 45-year low in November at just 3.8%.

However it was the accompanying earnings figures which proved the main draw foe GBP investors, as they revealed wage growth held at 3.2%, beating expectations it would slow to 3.1%.

The surprising robust release reflected particularly well on the Pound as it dented expectations the Bank of England (BoE) could seek to cut interest rates later in the month.

CME’s BoE Watch Tool showed the odds of a January rate hike fell in the wake of today’s data, with markets now pricing in a 62% chance of a rate cut next week, having previously risen as high as 72%.

GBP investors will now look towards Friday’s PMI figures, the final major UK data release ahead of the BoE’s rate decision next week.

Could an improvement in private sector growth at the start of the year, further decrease the odds of a BoE rate cut this month?

Tom Pugh, an Economist in Capital Economics, comments:

‘The rebound in employment and slightly softer pay growth will give the MPC another reason not to cut rates from 0.75% to 0.50% at their next meeting on 30th January. However, we think that the crucial piece of information for the MPC will be the flash PMIs [manufacturing data] on 24 January, which will confirm, or refute, any ‘Boris bounce’ in the economy.’

Euro (EUR) Buoyed by Upbeat ZEW Surveys

At the same time, whilst the Euro (EUR) has given ground against the Pound (GBP) this morning is holding firm in broader trade thanks to the publication of the latest ZEW economic surveys.

These have shown a marked improvement in economic sentiment in the Eurozone this month, with the sentiment index surging from 11.2 to 25.6, its highest level since February 2018.

The accompanying reading for Germany also showed a notable improvement in economic sentiment this month, attributed to easing global trade tensions.