The pound eased back off 2-month highs versus the euro on Monday amid concerns that Boris Johnson is not seeking a far-reaching trade deal with the EU.
The pound to euro exchange rate dropped 0.1% but found support at the key psychological level of €1.20.
Pound to Euro: Pound Looks To Wage Growth
The pound moved southward in the previous session as no trade deal Brexit fears resurfaced. Prime Minister Boris Johnson said that he wasn’t seeking anything special from the EU in upcoming talks. Instead Boris Johnson said that the UK was looking for something similar to other deals that the EU have struck. His comments seemed to weigh on demand for the pound, pulling it marginally lower.
Today investors will look ahead to UK employment data. The UK unemployment rate is on par with levels seen in the 1970’s at 3.8%. Wages are growing at a quicker pace than inflation. This means that households are receiving a rise in wages in real terms. When workers earn well, they often spend well. However, that hasn’t necessarily been the case recently as Brexit and political uncertainty has curtailed consumer spending.
Analysts are forecasting unemployment to remain steady at 3.8% and a slight dip in average earnings from 3.2% to 3% in the three months to December. A weak reading could pull the pound southwards.
Euro: German Sentiment To Remain Depressed?
Recent eurozone data has shown that the German economy stagnated in the last three months of 2019. Industrial production and factory orders show that the manufacturing sector is still declining and that is before the spillover impact of covid-19 is factored in. So far, there hasn’t been a central banker that didn’t express concerns about the effects of the outbreak of covid-19 on global economic growth.
With this in mind, business or consumer confidence is set to remain depressed in Germany. Today investors will look ahead to the ZEW German sentiment figures. Analysts are expecting a contraction in the economic sentiment index to 22 from 26.7. However, for the EU economic sentiment is expected to bounce to 30 from 25.6. Yet given that France and Italy in addition to Germany have also experienced a large slump in industrial production, this level of optimism for the EU seems too optimistic according to some analysts.