The British pound is higher against the euro on Tuesday afternoon after some punchy UK labour market data cast doubt on the possibility of a Bank of England rate cut next week. Survey data out of Germany was also well received, limiting the extent of the euro declines. UK and European stock markets are mostly down but off their lows on reports of a new contagious virus outbreak in China.
GBP/EUR was higher by 39 pips (+0.33%) at 1.1758 with a daily price range of 1.171 to 1.176 as of 1pm GMT, putting the currency pair back toward the top of its 5-day price range.
Speculation about a possible cut to UK interest rates this year, and possibly as early as this month has put pressure on Sterling in the past two weeks. The suggestion that interest rates could be headed lower was first touted by Bank of England governor Mark Carney and since then other rate-setters have joined the choir. If a decision is reached to cut interest rates at the next January 30 meeting, it will likely happen with a slim majority of votes. As it stands, it seems possible that 5 out of a possible 9 Monetary Policy Members would vote to cut rates. That means every data release before that decision counts.
Hence, the importance of today’s better than forecast unemployment data. UK employment grew by 208,000 in the three months through November with the unemployment rate unchanged at 3.8% according to the UK Office for National Statistics (ONS). Average weekly wages remained at 3.2%, despite expectations for a fall and wages excluding bonuses ran even hotter at 3.4%, down 0.1% from previously.
After initially turning lower when risk-off sentiment saw Forex traders go in search of the dollar as a haven, the euro stabilised as the day went on. Better economic data from Germany helped generate some of the demand. ZEW survey data showed confidence in Germany picked up in January with so-called ‘economic sentiment’ rising to 26.7 from 10.7 previously.
