- Pound (GBP) is lower for a second day
- UK unemployment and CPI data are due this week
- Euro (EUR) is higher even as US-EU trade war fears rise
- German ZEW economic sentiment improves
The Pound-Euro (GBP/EUR) exchange rate is falling for a second day. The pair fell 0.07% in the previous session, settling on Monday at €1.1530. It traded between €1.1511 and €1.1548. At 15:30 UTC on Tuesday, GBP/EUR trades -0.49% lower at €1.1474.
The pound falling sharply lower against the euro after more signs of a weakening UK labour market. Data show that the UK job market weakened further in the run-up to November’s budget announcement, and wage growth slowed, potentially easing the Bank of England’s concerns over persistent inflation pressures.
UK unemployment remained at 5.1% in the three months to January; in November, economists had been expecting a rise to 5%. Meanwhile, UK firms cut jobs at the fastest pace since 2020, with tax data showing the number of employees on payrolls falling 43,000 in December, a month after the chancellor’s tax-raising budget. This was almost twice what economists had been expecting.
Wage growth also slowed to 4.5%, its lowest level in 3 1/2 years.
The labour market has been a key focus for Bank of England policymakers, with some warning in recent weeks that downtown could be worsening, potentially pulling inflation lower.
UK inflation data is due tomorrow and is expected to show the CPI ticked modestly higher 3.3% up from 3.2% YoY.
The euro is rising as it continues to benefit from a sell-off in the US dollar, amid investor sentiment toward the ‘sell America’ trade, unnerved by policy uncertainty from the Trump administration.
The euro is rising despite threats that trade tariffs could hurt the growth prospects of several European countries, including Germany. Trump also threatened 200% tariffs on French wines and champagne, which is hurting the French stock market.
Meanwhile, on the data front, German ZEW economic sentiment was more than expected in January at 59.6, up from 45.8 in December and significantly exceeding the expectations of 50. The data suggests a strong investor optimism about future economic prospects.