The Euro Pound (EUR GBP) exchange rate trended lower this morning following the release of some impressive employment data from the UK.
According to the Office for National Statistics (ONS) the UK’s Unemployment Rate unexpectedly fell from 4.7% to 4.6% in March, reaching a new 42-year low as the number of unemployed fell by 53,000 to 1.54m in the first three months of the year.
The data also shows that Britain’s labour force expanded by 122,000 to 31.95m in the first quarter, with employment reaching its highest levels since records began, strengthening Sterling.
This suggests that despite the uncertainties of Brexit the UK’s labour market is continuing to expand at a solid rate, quelling fears that firms are avoiding expanding until after the Brexit deal is finalised.
Slightly concerning however is that Average Earnings (excluding bonuses) slipped from 2.2% to 2.1%, a worrying prospect for households especially as inflation soared to 2.7% last month, with real pay taking a battering as wage growth fails to keep up with a rise in consumer prices.
Professor Geraint Johnes, Director of Research at the Work Foundation said;
‘On pay, the data is less encouraging. In the first quarter of the year, the year-on-year growth in total pay amounted (including bonuses) to 2.4%. This is below the current rate of price inflation and indicates a renewed squeeze in real pay.’
Markets fear that this will have a negative impact on UK growth this year as much of Britain’s economic resilience since the Brexit vote has been driven by robust household spending, with the UK’s all-important services sector likely to bear the brunt of a fall in consumer activity.
Meanwhile, the Euro was able to stem its losses thanks to the release of the Eurozone’s latest CPI figures, which surged from 1.5% to 1.9% in April, placing it just shy of the European Central Bank’s (ECB) target rate of 2.0%.
The jump was largely driven by a rise in fuel prices, with an uptick in demand for holidays over Easter and subsequent higher air fares also contributing.
While EUR investors are hopeful that this will prompt the bank to begin discussing the possibility of raising interest rates, it seems unlikely that ECB President Mario Draghi will deviate from his current stance toward the Bank’s ultra-loose monetary policy, which he maintains is still necessary despite recent upbeat economic data from the bloc.
Looking ahead, the EUR GBP exchange rate is likely to strengthen tomorrow if France’s first quarter jobless figures show that the Unemployment Rate fell below 10%.
However the Euro’s advance could slow later in the day following a speech by Draghi as analysts expect him to maintain his dovish outlook towards future monetary policy despite the uptick in Eurozone inflation.
Meanwhile, the Pound may attempt to rally on Thursday morning following the release of the UK’s latest Retail Sales figures as they are forecast to rise from -1.8% to 1.0% in April as they normalise following the later start to Easter this year.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.8570 and the GBP EUR exchange rate was trending around 1.1668.