GBP/USD: Pound Steady vs. Dollar Ahead of UK Budget
  • Pound (GBP) rises for a third straight day
  • UK unemployment rose to 4.2%
  • Euro (EUR) falls despite upbeat German economic sentiment
  • ECB is likely to cut rates in June

The Pound Euro (GBP/EUR) exchange rate is rising for a third straight day. The pair rose 0.08% in the previous session, settling on Monday at €1.1712 and trading in a range between €1.1689 and €1.1730. At 10:00 UTC, GBP/EUR trades +0.04% at €1.1716.

The pound is inching higher after UK jobs data painted a mixed picture. UK unemployment rose to 4.2%, up from an upwardly revised 4%, marking a six-month high. The data hence points towards a weakening economy, which could lead to inflationary pressures easing. The Bank of England, in its forecast in February, had expected unemployment to rise to 4.4% at the end of the first quarter of this year. This means that there could be more job losses in March.

However wage growth is only slightly lower at 6% down from 6.1%, showing that currently inflationary pressures remain relatively strong, meaning that the Bank of England is unlikely to cut interest rates in the May meeting.

The market is fully pricing in the first rate cut from the Bank of England in September at the earliest, and an August move is being priced in at 80%. The market is expecting two rate crop cuts this year.

Looking ahead, Bank of England governor Andrew Bailey will speak later today.

The euro is under pressure the ECB is expected to start cutting interest rates sooner in June. Inflation in the region has cooled more quickly, and the economy has slowed, paving the way for a cut.

Data today showed that German ZEW economic sentiment improved considerably in April, climbing to 42.9, up from 31.7 in March and beating the market expectations of 35.1.

The significant improvement in economic sentiment comes as inflation has fallen back to 2.2% year on year in Germany and amid signs that the downturn in the manufacturing sector is bottoming out.