The 2017 Pound Euro exchange rate outlook worsened on Wednesday as the latest UK employment results increased concerns about Britain’s economic outlook. This as well as recent political uncertainty has things looking pretty grim for the Pound this week.
GBP EUR briefly recovered to over 1.1400 on Wednesday morning but following the report dropped back to 1.13. The pair remains above Tuesday’s 2017 lows.
Pound (GBP) Outlook Hit by Pay Squeeze Concerns
The Pound was undermined last week by the results of Britain’s 2017 general election, which caused a surge in political uncertainty.
This week, economic uncertainty has increased too. UK consumer prices continue to surge and British wage growth has slowed more than expected.
This has worsened concerns about a ‘pay squeeze’, meaning UK citizens are not being paid enough wages to spend comfortably on the high street. As Britain’s economy is heavily consumer-facing, analysts predict this could have a negative effect on the nation’s Gross Domestic Product (GDP) this year.
UK inflation hit 2.9% year-on-year in May, while wage growth unexpectedly slowed from 1.8% to 1.7% in April despite being expected to come in at 2%. This puts wages on a much lower track than the growth rate of consumer prices.
Due to the concerning slows in wage growth, investors largely brushed over April’s impressive employment rate stats.
According to the Office for National Statistics, real wages have actually dropped in the last year;
‘Between February to April 2016 and February to April 2017 in real terms (that is, adjusted for consumer price inflation) total pay for employees in Great Britain fell by 0.4%, the lowest growth rate since July to September 2014.’
Investors are now concerned that Britain’s economic growth will see notable slowdown later in the year which has dampened the long-term Pound outlook. Concerns about how the UK government will proceed in Brexit negotiations have also weighed on Sterling.
Euro (EUR) Struggles to Capitalise amid Mixed Data
The Euro has weakened after a bout of strength on Monday, which saw investors react to the success of French President Emmanuel Macron’s ‘en Marche!’ party in French legislative elections.
The shared currency’s long-term outlook remains strong, however.
Tuesday saw the publication of ZEW’s June economic sentiment surveys for Germany and the Eurozone. The German current conditions print actually beat expectations of 85, rising from 83.9 to 88, as did the Eurozone sentiment index which improved from 35.1 to 37.7.
However, Germany’s economic sentiment index unexpectedly dropped from 20.6 to 18.6 despite being expected to rise to 21.5.
Wednesday’s data was a little better. Germany’s final May inflation stats failed to improve, meeting projections of -0.2% month-on-month and 1.5% year-on-year, but the Q1 Eurozone employment change report beat expectations.
Year-on-year employment rose from 1.4% to 1.5% in Q1, while the quarterly employment change rate unexpectedly improved from 0.3% to 0.4%.
Despite this week’s mixed data, the strong performance of ‘en Marche!’ in French legislative elections as well as generally positive Eurozone data in recent months means the long-term outlook for the currency bloc is still improving.
The 2017 Pound Euro outlook is lower as a result of this and Pound weakness.
GBP EUR Interbank Rate
At the time of writing this article, the 2017 Pound Euro exchange rate trended in the region of 1.1360. The Euro Pound exchange rate traded at around 0.8803.
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