The pound advanced versus the euro in the previous session as investors pushed back on Bank of England (BoE) rate cut expectations. The pound euro exchange rate closed Tuesday’s session 0.4% higher at €1.1773, 3 points off the high of the day. The pair is holding steady in early trade on Wednesday as investors look ahead to the European Central Bank monetary policy announcement.
The pound surged after a report from the Office of National Statistics (ONS) showed that the UK labour market was in good shape despite the British economy showing signs of strain. Labour market data showed that the number of people in work increased by more than what analysts were expecting in the three months to the end of November with 208,000 jobs created versus 110,000 forecast. The employment rate was at the highest level since records began 50 year ago.
Wage growth data also surprised to the upside, increasing 3.2%, beating analysts’ expectations of 2.9%. The strong data eased concerns of an interest rate cut by the BoE at the end of the month. The BoE could instead opt to wait until the March meeting, by which time they will have more data on which to base their decision.
Today investors will look towards public sector net borrowing for an insight into the health of public sector finances ahead of Brexit.
ECB Strategic Review Under The Spotlight
Losses in the euro were capped on Tuesday by data showing that German investors were at their most optimistic since 2015. The German ZEW sentiment index jumped to 26.7 in December, up from 10.7 in December. The improved mood was mainly owing to the US – China phase one trade deal agreed in December and signed last week, after 18 months of trade tensions and conflict.
Despite the better mood, the ZEW institute also highlighted that the growth outlook for Germany, remains subdued.
Today investors will look towards the ECB monetary policy meeting. The central bank is not expected to alter monetary policy. That said, the central bank’s stance is still expected to remain firmly skewed towards further easing. A strategic review could also see the ECB change the inflation target this year. The ECB are expected to look more closely at the effects of ultra-loose monetary policy. This could go some way to healing the divisions within the central bank.
|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.