GBP/EUR: Will Eurozone Inflation Data Boost Pound vs. Euro?
  • Pound (GBP) rises ahead of jobs data
  • UK wages growth rises to almost record high
  • Euro (EUR) slips after reports that the ECB will hike by 25 not 50 bps
  • Eurozone inflation data due

The Pound Euro (GBP/EUR) exchange rate is edging higher after strong gains in the previous session. The pair rose 1.08% on Tuesday, settling at €1.1389, after trading in a range between €1.1250 – €1.1394. At 05:45 UTC, GBP/EUR trades +0.05% at €1.1394.

The pound surged higher in the previous session following stronger-than-expected UK jobs report. Unemployment held steady at 3.7%, as expected, and towards historic lows. Meanwhile, average wages excluding bonuses jumped to 6.4%, up from 6.1%, as the labour shortage saw companies pay more money to their employees in order to retain talent.

Wage growth that was near record levels and low unemployment levels mean that the Bank of England can continue hiking interest rates. The data supports another 50 basis point hike from the UK central bank. There were some signs of the labour market weakening as vacancies dropped for a seventh straight month.

Attention will now turn to UK inflation data which is expected to cool slightly to 10.5% year on year in December, down from 10.7%. Core inflation which strips out more volatile items such as food and fuel, is expected to tick lower to 6.2% from 6.3%.

Hot inflation, along with a tight labour market and better-than-expected GDP data, mount pressure on the BoE to keep acting aggressively, hiking rates.

The euro Foul in the previous session after reports emerged that the ECB looking to raise interest rates by 25 basis points in March instead of the 50 basis points that the market had been expecting.

This news overshadowed better-than-expected German economic sentiment data. The closely watched ZEW economic sentiment index jumped to 16.9 in January, up from -23.6 in December and well ahead of the -15.5 analysts had been expecting.

Looking ahead attention will be on eurozone inflation, the final reading for December. Expectations are for inflation to confirm the initial reading of a fall in consumer prices to 9.2% year on year from 9.2%.