The pound-euro exchange rate traded broadly flat on Monday, as investors continued to digest the unfolding financial crisis in Turkey. The pound-euro exchange rate hovered around €1.1195, approximately the same level that it started trading.
|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 remained steady in the previous session, even as volatility in general was high in the foreign exchange markets, as investors focused on the plummeting value of the Turkish Lira. The overall feeling in the market was one of caution, keeping the pound-euro exchange rate flat.
Pound investors are now looking ahead to a busy week on the UK economic calendar. The releases begin today with the UK jobs data, which is followed on Wednesday by the UK inflation figures and then retail sales on Thursday. This should provide some distraction to pound traders, who focused last week on the increased chances of a no deal Brexit.
Analysts are expecting the UK unemployment level to remain at multi decade lows of 4.2%. They also expect average earnings – including and excluding bonuses – to remain constant in the three months to June, at 2.5% and 2.7% respectively. Investors will want to see that wage growth is holding up and that the Bank of England rate rise earlier in the month was justified. A weaker reading could indicate that the central bank hiked too quickly, which could unnerve investors.
|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 goods 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.|
After falling heavily at the end of last week, the euro stabilised at the start of this week. The euro has been hit by the Turkish Lira crisis as fears grow that Turkish corporates could start defaulting on foreign debt after the Lira has fallen 28% in August. This could hit European banks which have the most exposure to Turkish debt and loans. The fear of contagion from Turkey to the European banks made investors nervous. As a result, market participants sold out of the euro and looked towards a safer haven, the dollar.
Today investors will have plenty of high impacting data to distract them from events in Turkey. German and eurozone GDP and German inflation data, plus German economic confidence data could provide some volatility in the euro, as investors assess the impact of trade tensions on the German and broader eurozone economy.
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