• Pound (GBP) falls for a second day
  • UK jobs market is weakening
  • Euro (EUR) rises despite German inflation cooling to a 2-year low
  • The ECB looks to cut rates when CPI is at 2%

The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell 0.17% in the previous session, settling on Monday at €1.1728 and trading in a range between €1.1717 and €1.1751. At 09:00 UTC, GBP/EUR trades -0.23% at €1.1701.

The pound is falling after UK jobs data showed that the labor market is weakening, bringing some expected relief to Bank of England policymakers.

The latest UK jobs data showed that the unemployment rate unexpectedly rose to 3.9%, up from 3.8%, an 11-month low. Meanwhile, job vacancies also fell for a 20th consecutive month, dropping 200,000 on the year. Adding to the weaker picture, regular wage growth was 6.1% in the three months to January, down from 6.2% in the final quarter of last year. This was also lower than the 6.2% the market had expected.

The Bank of England will be watching wage growth data closely to gauge underlying inflationary pressures as it weighs up whether to cut interest rates later in the year.

Bank of England rate cut bets rose slightly. Traders now expect around three interest rate cuts from the central bank this year, with the first one fully priced in August.

However, it’s worth noting that the drop in the pound has been relatively modest given that the easing in wage growth is modest and, therefore, unlikely to spark a massive shift in policymakers’ thinking.

The euro is capitalizing on the weaker pound and pushing higher even as German inflation confirmed the preliminary reading cooling to a two-year low in February.

Germany’s Federal Statistics Office said that consumer prices rose 2.5% year on year in February, down from 2.9% in January to 3.7% in December, marking its lowest rate since June 2021.

The ECB is looking for inflation in the eurozone as a whole to reach 2% before starting to cut rates. The market is expecting the central bank to start loosening monetary policy in June.