• Pound (GBP) extends gains
  • UK labour shortage drives up wages
  • Euro (EUR) pressurized after German industrial production & EZ retail sales disappoint
  • German trade balance due

The Pound Euro (GBP/EUR) exchange rate is ticking a few pips lower after booking gains in the previous session. The pair settled +0.33% higher on Thursday at €1.1786 after moving as high as €1.1801 earlier in the session. At 05:45 UTC, GBP/EUR trades -0.04% at €1.1781.The pair is set to gain 0.87% across the week, its second straight week of gains.

The Pound has put on a resilient performance this week despite concerns over Brexit raising their head once again. Data has been in short supply but the services PMI earlier in the week was stronger than forecast.

Rising inflation remains a key factor, with expectations building that the Bank of England could be forced to move to hike rates sooner than expected.

According to the latest data from the Recruitment and Employment Confederation British employers increased pay for new staff by the most since the late 1990’s. Competition for staff is widespread and labour shortages are a real problem.

There is no high impacting data due today. The BoE is due to release its quarterly bulletin.

The Euro came under pressure in the previous session after a double whammy of disappointing data. Firstly, German industrial production suffered its sharpest drop in August since April last year. Supply chain disruptions caused output to fall by 4% month on month after rising 1.3% in July. Analysts had expected a more moderate decline of 0.4%.

Concerns are growing that supply chain disruptions and shortages of parts are holding back growth in Europe’s largest economy, with the auto sector being hit hard. Car production declined by 17.5% across the month.

Secondly Eurozone retail sales were also disappointing. Sales rose a less than expected 0.3% month on month in August after falling 2.6% in July. Expectations had been for a 0.8% rise. The weak data throws into doubt the strength of the consumer led recovery in Europe.

Today there is no high impacting Eurozone data. There are some mid tier German trade balance numbers due shortly.