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Will GBP/EUR Strengthen as UK Labour Market Remains Strong?

Pound and Euro coins lined up

Pound Euro (GBP/EUR) Exchange Rate Narrows as Investors Await BoE Speech

The Pound Euro (GBP/EUR) exchange rate is narrowing this morning, as GBP investors await Bank of England (BoE) Governor Andrew Bailey’s afternoon speech.

At the time of writing, GBP/EUR is trading at around €1.1284, showing little movement from the morning’s opening rates.

Pound (GBP) to be Boosted by Low Unemployment?

The Pound (GBP) may continue to weaken throughout the rest of today’s session, as investors await the Bank of England (BoE) Governor Andrew Bailey’s speech this afternoon.

Should Bailey strike a dovish tone, the Pound may fall further as investor confidence in higher interest rate hikes continues to fall.

However, tomorrow may bring support for the Pound due to the release of the latest unemployment rate. With unemployment expected to remain at 3.7%, the signs of a tight labour market could bring optimism to investors. This could signal that the Bank of England (BoE) has room for further interest rate hikes, as they aim to control inflation.

On the other hand, the latest wage growth data may counteract these hopes. While regular pay is expected to increase from 6.1% to 6.3%, it remains to be seen if wage growth is keeping pace with inflation. Should it remain below inflation, GBP’s gains may be capped.

Risk sentiment could play a further factor in shaping the Pound. As an increasingly-risk sensitive currency, a shift to risk-on trade could boost Sterling. Similarly, as industrial action continues to be a bugbear for the UK economy, further headlines detailing strikes could mute Sterling.

Euro (EUR) to Strengthen amid Upbeat German Data?

Over the rest of today, the Euro (EUR) could trade at the mercy of risk sentiment. Due to the safer nature of the Euro, this may see it continue to trade in a mixed capacity.

Tomorrow brings the release of January’s ZEW economic sentiment index for Germany. An increase is forecast from -23.3 to -15, which while firmly in pessimistic territory, could bring gains for the Euro by reflecting a turn towards optimism for the German economy.

Furthermore, Tuesday also sees the final inflation figures from Germany. As the bloc’s largest economy, a significant deviation in either core or headline inflation may sway the single currency. However, if they print as forecast, the impact is likely to be minimal.

Elsewhere, the Euro’s negative correlation with the US Dollar may further shape EUR exchange rates. If the US Dollar continues strengthening over today and tomorrow, the Euro may see any potential gains muted.

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