Risk of Slower UK Wage Growth Triggering GBP/EUR Exchange Rate Losses
The Pound (GBP) has slipped against the Euro (EUR) today and there could be further turbulence ahead on next week’s UK wage growth figures.
Economists are divided about whether the results might show growth or a decline; both outcomes could have a significant impact on the GBP/EUR exchange rate.
If the pace of wage growth is reported higher in April then the Pound could appreciate as this would increase the likelihood of a Bank of England (BoE) interest rate hike.
BoE officials are looking for signs that the UK economy can cope with the effects of higher interest rates; a faster pace of earnings growth would support this.
On the other hand, if the pace of wage growth slows then Pound Sterling could tumble in the GBP/EUR pairing because of recurrent trader concerns.
A slowdown would risk the inflation rate overtaking the pace of wage growth, leading to a wage squeeze on UK consumers.
As well as risking reduced consumer spending, such an outcome would also cut the odds of a near-term BoE interest rate hike.
Will UK inflation Rate Acceleration Trigger GBP/EUR Exchange Rate Losses?
Just beyond the upcoming UK wage growth figures, the Pound to Euro (GBP/EUR) exchange rate could also be affected by inflation rate data out next Wednesday.
These readings may show an acceleration in levels of price growth during May, which risks causing a GBP/EUR exchange rate decline.
Higher inflation seems probable given that fuel prices rose sharply in May; the rise was caused by a weak Pound and the risk of US sanctions driving up oil prices.
Higher inflation will increase the pressure on the Bank of England (BoE) to consider raising interest rates, but could also lead to a wage squeeze on UK households.
Bearing in mind that the BoE resisted raising interest rates when inflation was much higher than its current level, the Pound could slide against the Euro if prices increase.
Is Euro to Pound (EUR/GBP) Exchange Rate Turbulence ahead on Eurozone GDP Data?
Although the Pound (GBP) might struggle against the Euro (EUR) next week, the single currency could fall in the pairing more immediately.
Finalised Eurozone GDP growth rate figures will be out on Thursday afternoon and are expected to confirm that economic expansion slowed during Q1 2018.
While this wouldn’t be the end of the world, it would still represent a less-than-ideal start to the year for the single currency bloc and might devalue the Euro.
Can EUR/GBP Exchange Rate Rise after ECB Monetary Policy Meeting?
Looking further ahead, the Euro to Pound (EUR/GBP) exchange rate might be affected by the European Central Bank’s (ECB) interest rate meeting on 14th June.
ECB officials aren’t expected to adjust interest rates from their current 0%, but the Euro could still firm if policymakers are optimistic about the Eurozone going ahead.
Of particular importance will be any comments on the new Italian government, which is made up of a coalition of Eurosceptic parties.
If ECB officials think that there won’t be issues despite this potentially problematic leadership, the Euro (EUR) could firm and advance against Pound Sterling (GBP).