- Pound (GBP) rises as unemployment unexpectedly dropped
- Wage growth slowed by less than expected
- Euro (EUR) falls after ZEW current expectations falls
- Economic sentiment rises for a seventh month
The Pound Euro (GBP/EUR) exchange rate is rising for a third straight day. The pair rose +0.13% in the previous session, settling on Monday at €1.1721 and trading in a range between €1.1698 – €1.1721. At 11:00 UTC, GBP/EUR trades +0.24% at €1.1754.
The pound is rising after stronger-than-expected UK jobs data. The figures released by the Office of National Statistics showed that the unemployment rate in the UK unexpectedly fell to 3.8%, down from 3.9%, defying expectations of a rise to 4%.
Meanwhile, wage growth was stickier than expected, growing at 5.8% at the end of last year. While this was slower than the 6.5% growth seen in November, it was still stronger growth than what analysts had forecast at 5.6%.
Meanwhile, wages excluding bonuses rose 6.2% year on year, down from an upwardly revised 6.7% in the three months through to November. Economists had forecast a reading of 6%.
Wages are growing faster than prices, which means households will be enjoying a return of real spending power; however, this also does add inflationary pressure to the economy, which means the Bank of England will likely be more cautious about moving to cut to interest rates. As a result, the market has pushed back on the Bank of England’s interest rate cut expectations.
The market is expecting the central bank to hold interest rates at a 16-year high until the summer, with two 25-basis point rate cuts priced in for 2024 and a 90% probability of a third. This is down significantly from expectations of as many as six interest rate cuts at the end of last year.
The Euro is under pressure against the stronger pound despite improving economic morale in Germany, the eurozone’s largest economy.
The ZEW German economic sentiment index jumped to 19.9 in February, up from 15.2 in January, suggesting that there could be some light at the end of the tunnel for the German economy. This marked the seventh straight month of improving sentiment; however, the current assessment component weakened for a second straight month, dropping to -81.7, the lowest level since the start of the pandemic, and down from -77.3 in January.