- Pound (GBP) is rising for a second day
- UK wage growth rose to 5.2% in the 3/M to October
- Euro (EUR) falls after weak German IFO business climate data
- German ZEW current situation also deteriorated
The Pound Euro (GBP/EUR) exchange rate is rising for a second straight day. The pair rose 0.39% in the previous session, settling on Monday at €1.2061. It traded in a range between €1.2006 and €1.2191. At 22:00 UTC, GBP/EUR trades +0.45% at €1.2116.
The pound pushed higher on Tuesday after UK jobs Prompted investors to rein in Bank of England rate cut expectations for next year.
Average weekly earnings, excluding bonuses, rose 5.2% in the three months to the end of October, ahead of the 5% expected. Bank of England policymakers have been watching wage growth closely, as it’s intrinsically linked to sticky service sector inflation. This marks the fastest private sector pay increase since May and reduces the likelihood that the Bank of England will be cutting interest rates aggressively.
Following the data, the market reined in rate cut expectations to fully price in just two quarter-point cuts in borrowing costs between now and the end of 2025.
The central bank is widely expected to leave interest rates unchanged on Thursday after its December meeting and instead wait to see the impact of the Labour budget on the jobs market at the start of the new year.
Meanwhile, the euro fell as business confidence in Germany, the eurozone’s largest economy, deteriorated in December. Business sentiment in Germany fell to the weakest level since 2020 as firms were more skeptical about the economic outlook amid the prospect of trade tariffs from the US and amid uncertainty surrounding domestic political issues. The Ifo business climate index fell to 84.7 in December, down from 85.6 in November.
However, the December ZEW economic sentiment survey showed a notable improvement in the outlook for Germany and the eurozone amid optimism surrounding interest rate cuts.
The Germans at ZEW’s economic sentiment index rose to 15.7 from 7.4, well ahead of expectations of seven. However, the current situation index deteriorated to -93.1 from -91.4, reflecting near-term weakness. Eurozone’s ATW economic sentiment also showed a strong increase, rising to 17 from 11.6; however, the current situation index also revealed a sharper decline, falling to -55.
