GBP/EUR: Will Inflation Data Pull Pound From 2 Month Highs vs Euro?

The pound surged to a fresh 2 month high versus the euro on Tuesday after UK jobs data impressed whilst German sentiment figures unnerved investors. The pound to euro exchange rate hit a peak of €1.2075, before easing slightly into the close.

Investors will look ahead to UK inflation data today whilst eurozone data is in short supply.

GBP/EUR: UK Jobs Data Boosted Pound, Inflation Data To Drag It Lower?

Data on Tuesday revealed that the UK jobs market has stayed surprisingly resilient during the UK elections and Brexit. 180,000 jobs were created in the three months to December and the unemployment rate held steady at 3.8%. Excluding bonuses, wage growth was at 3.2%. This is down from the 4% recorded over the summer. However, it is still a solid reading and unlikely to cause any concern at the Bank of England.

Wage growth is still well above inflation, which means that households have more money. Often workers on higher wages in real terms spend more, which in the consumer dominant UK economy is very important. However, with lingering Brexit uncertainty the UK consumer hasn’t been spending as freely. Consumer spending figures are still depressed.

Today investors will look towards UK inflation figures. Analysts are expecting inflation, as measured by consumer, price index to decline -0.4% month on month in January, down from 0% in December. A weak reading could cause investors to bring forward rate cut expectations and drag the pound lower.

Euro Weakness As Coronavirus Hits Sentiment

The euro was under pressure in the previous session after data revealed that investor sentiment in Germany dropped sharply in February as the effects of the covid-19 outbreak weighed on exporters adding to an increasingly depressing picture in Europe’s largest economy. ZEW sentiment index dropped to 8.7 points in February, down from 26.7 in January and well short of the 22-level forecast. This data provides the first clear sign of the hit by coronavirus on investors sentiment in the eurozone.

Dimming sentiment comes after a raft of weak German data with economic growth stagnating and the manufacturing sector suffering its worst year for a decade in 2019.

Today there is no influential data. Investors will look ahead to GFK sentiment figures on Thursday.

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