GBP/EUR: Will Today's Rate Rise Revive Hopes For A Rate Rise?

Italy’s anti-establishment parties, the League and 5 Star Movement being on the verge of forming a governing alliance did little to boost the euro on Monday. The pound euro exchange rate edged higher to a peak of €1.1362.

What do these figures mean?

When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.

For example, it could be written: 1 GBP = 1.13990 EUR

Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound.

Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP

In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.

The pound was trading marginally stronger across the board in the previous session as investors look ahead to today’s labour report. The pound has been struggling thanks to a streak of poor data over the past month. A weak Gross Domestic Product (GDP) update was the final straw, wiping away any remaining optimism of a Spring interest rate hike. The BoE then gave a cautious update, confirming it would not be taking further action until it has assessed more data. This would enable the central bank to take a more informed decision as to whether the recent softness in the economy was temporary, or a more serious structural change.

Against this backdrop investors will be looking ahead to today’s employment figures. The UK unemployment level is expected to remain constant at a multi decade low of 4.2%. Average earnings will be the central focus and analysts expectations are mixed. Analysts are expecting average wages including bonuses is to have cooled from 2.8% in February to 2.6% in March. Meanwhile, analysts are anticipating that the figure excluding bonuses will increase to 2.9% in March up from 2.8% the month before. Whilst both readings are important the BoE tends to pay more attention to the latter. Therefore, this is the figure that could have more influence on the price of sterling. A strong reading could help lift the pound.

How does strong jobs data boost the currency?
It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the good and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes the worth of the currency higher.

Italian Populist Parties Request More Time

Italy’s two popularist, Eurosceptic parties are on the cusp of forming a functioning government. Whilst this would end the political vacuum that Italy has been experiencing since March, it would also mean that Italy would have its first anti establishment government.

The two parties have requested more time to negotiate after passing Sunday’s deadline. They still need to agree on a candidate for Prime Minister. However, the fact that these parties are not in favour of Europe is what is causing some concern for euro traders.

Today attention will return to economic data with several high impacting releases. These include German GDP, Eurozone GDP and German ZEW confidence data, which could create volatility in the common currency.

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