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Euro Pound (EUR/GBP) Exchange Rate Fails to Strengthen on Surprise German Unemployment Drop


Falling German Unemployment Fails to Shore up Euro Pound Sterling (EUR/GBP) Exchange Rate

A surprise improvement in the German unemployment rate failed to boost the Euro to Pound Sterling (EUR/GBP) exchange rate on Wednesday.

Although the unemployment rate dipped from 6.4% to 6.3% in September, reflecting a modest strengthening of the labour market, the mood towards the Euro (EUR) remained muted.

Even with the labour market showing signs of recovery worries over the economic outlook remained, limiting the appeal of the single currency.

Pound Sterling (GBP) found some support on the back of comments from Bank of England (BoE) chief economist Andy Haldane, meanwhile.

As Haldane indicated that interest rates are unlikely to turn negative in the near future this helped to put a floor under GBP exchange rates.

EUR Exchange Rates Vulnerable to Negative Eurozone Inflation Data

The mood towards the Euro could sour significantly ahead of the weekend as forecasts point towards a negative Eurozone consumer price index reading.

After the underwhelming German inflation figures investors are wary of the potential for a similarly negative showing from the overall Eurozone report.

As long as inflation continues to trail far below the European Central Bank’s (ECB) 2% target this would leave the Euro vulnerable to selling pressure.

While markets do not see the ECB as likely to act imminently a negative inflation reading could well give policymakers cause for fresh concern.

If the central bank gains incentive to loosen monetary policy again sooner rather than later this could drag the single currency down across the board.

On the other hand, a stronger-than-expected performance from the Eurozone inflation data may encourage the Euro to return to a bullish trend against its rivals.

Any softening of the US Dollar (USD) could also benefit the single currency, thanks to the negative correlation of the EUR/USD exchange rate.

Lack of Imminent Brexit Agreement May Weigh on Pound Sterling

As BoE policymakers have proven split over the issue of negative interest rates the Pound remains vulnerable to any fresh commentary from members of the Monetary Policy Committee (MPC).

However, greater focus is likely to fall on the matter of Brexit in the days ahead as the final scheduled round of UK-EU talks draw to a close.

Unless the two sides appear on the verge of an agreement the EUR/GBP exchange rate could push sharply higher as the odds of a potential no-deal scenario rise.

As long as the UK economy appears at risk of further disruption in the months ahead support for the Pound looks set to fade.

A lack of positive revision to September’s finalised UK manufacturing and services PMIs may also limit the potential for Pound gains, offering the EUR/GBP exchange rate additional support.