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Euro pound (EUR/GBP) edges higher amid UK labour market concerns

Euro pound (EUR/GBP) strengthens as UK labour market cools

The euro pound (EUR/GBP) exchange rate is edging higher this morning following the latest batch of UK employment data.

At the time of writing the EUR/GBP exchange rate is trading at €0.8608, up approximately 0.2% from this morning’s opening rate.         

Pound (GBP) slumps on weak employment data

The pound (GBP) faces headwinds this morning as the latest domestic jobs data points to gradual loosening within the British labour market.

Unemployment rose to 4.3% in the UK in March, in line with market projections and surpassing the previous month’s notable increase to 4.2%.

Meanwhile, average earnings in March’s three-month average unexpectedly held steady at 6%, rather than easing slightly serving to cushion GBP’s downside. However, off the back of the downbeat release, analysts affirmed that cooling wage inflation will likely permeate UK jobs in the coming months.

Such assertions worked in tandem with loosening UK employment, seemingly dialling up Bank of England (BoE) interest rate cut speculation and denting GBP exchange rates.

Yael Selfin, Chief Economist at KMPG, explains:

‘If (pay data) comes in line with our expectations of only a modest boost, and sufficient to keep annual pay growth on a downward trajectory, this could ignite more dovish sentiment on the MPC ahead of their June vote.

With markets now estimating a 50% likelihood of a June rate cut, weak employment data may continue to drive Sterling’s losses as the session progresses.

Euro (EUR) edges higher on improving morale

The euro (EUR) is posting some modest gains this morning as the latest German ZEW economic sentiment index came in higher than forecast.

The index reached its highest level since February 2022, printing at 47.1 in May. This surpassed market projections of 46, and jumped higher from last month’s 42.1, indicating that German morale continues to rapidly recover.

Professor Achim Wambach on the survey results, ZEW President, said:

‘Signs of an economic recovery are growing, bolstered by better assessments of the overall eurozone and of China as a key export market. The increased optimism is reflected in particular in the sharp rise in expectations for domestic consumption, followed by the construction and machinery sectors.’

Elsewhere, Germany’s latest inflation data seemingly caps EUR’s upside potential so far today. Inflation in the Eurozone’s largest economy fell to 2.2%, rapidly approaching the European Central Bank’s (ECB) 2% target rate.

Euro pound exchange rate forecast: EU industry data in focus

Looking ahead, the Eurozone’s latest industrial production figures are due for release tomorrow. Economists expect to see a notable decline to -0.2% in Eurozone output throughout March, significantly easing from February’s more robust 8%. Should the data print as forecast, signs of easing production may hamper EUR exchange rates.

For the pound, a lack of notable data in the coming days will likely leave the increasingly risk-sensitive currency vulnerable to market risk dynamics. Bullish trade may underpin GBP exchange rates, while gloomy trading conditions could see its safer rivals take precedent.