- Pound (GBP) is falling, extending last week’s losses
- Attention is on UK jobs data after Bailey’s warnings
- Euro (EUR) is rising but falling against the USD
- Trump threatened 30% tariffs on the EU.
The Pound-Euro (GBP/EUR) exchange rate is falling, extending losses from last week. The pair fell 0.36% in the previous week, settling on Friday at €1.1549. It traded between €1.1532 and €1.1635. At 15:30, GBP/EUR trades -0.12% at €1.1535.
The pound is falling, extending losses from last week, after UK GDP unexpectedly contracted and amid ongoing concerns about the lack of fiscal headroom.
Last week, data showed that the UK economy unexpectedly contracted 0.1% month on month in May, marking a second straight month of contraction, whilst further reducing headroom for the UK chancellor ahead of the autumn budget.
The chancellor is widely expected to hike taxes in order to plug a black hole in the government’s finances. This is a move that could slow the economy even further.
The weekend, Bank of England governor Andrew Bailey warned that the central bank could make bigger cuts to interest rates if the job market slows too quickly.
Higher taxes have squeezed employers, which could see unemployment rise more quickly than initially expected. UK jobs data is due to be released on Thursday. It comes after UK CPI data, due on Tuesday, which is expected to show that inflation remains sticky around 3.5%.
The euro is rising against the pound but falling against the US dollar after President Trump threatened a 30% tariff on EU imports, which will start on August 1st unless a trade deal is agreed.
Whilst the threat pulled the euro modestly lower against the USD and European stocks away from record highs, the market reaction has been relatively tame. This is because investors consider this to be a negotiation tactic by Trump rather than a final tariff rate.
There is no high-impact economic data due to be released today, attention will turn to tomorrow, where the German ZEW economic sentiment report will be in focus.