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Euro pound (EUR/GBP) wavers despite improving German optimism

Euro pound (EUR/GBP) muted despite upbeat German data

The euro pound (EUR/GBP) exchange rate is fluctuating today amid a series of impactful data releases for both the Eurozone and the UK. 

At the time of writing the EUR/GBP exchange rate is trading at €0.08541, virtually unchanged from this morning’s opening rate.         

Euro (EUR) wavers despite improving ZEW economic sentiment index

The euro (EUR) is struggling to find a clear direction this morning despite a better-than-forecast ZEW economic sentiment index.

The index printed significantly better-than-forecast in April, at 42.9. Markets had anticipated a reading of 35.9 in April, which would have seen a modest rise from last month’s 31.7. However, the ZEW index instead reached its highest point since February 2022, indicating improving morale in the Eurozone’s largest economy.

ZEW President Professor Achim Wambach commented:

‘A recovering global economy is boosting expectations for Germany, with half of the respondents anticipating the country’s economy to pick up over the next six months. Further contributing to the heightened optimism are the much-improved assessments of the situation and economic expectations in Germany’s export destinations.’

However, EUR’s upside was significantly blocked as escalating tensions in the Middle East continued to rock global markets.

Pound (GBP) muted as UK labour market cools

The pound (GBP) was flat against most of its peers this morning following the UK’s latest employment data.

In February, UK unemployment hit 4.2%, leaping above market expectations and January’s upwardly revised 4%. In addition to this, average earnings in the three months prior to February 2024 eased more-than-forecast, cooling to 6%.

Markets are deliberating whether renewed signs of a loosening UK labour market could encourage the Bank of England (BoE) to promptly begin its unwinding cycle.

The data serves to reinforce concerns of a loosening UK labour market, boosting market expectations that the Bank of England (BoE) could begin lowering interest rates in June.

Yael Selfin, Chief Economist at KPMG UK, noted that the latest employment data reinforces speculations that the central bank is well on its way to loosening monetary policy this summer.

Selfin stated:

‘The slight easing in regular pay growth will bring some comfort for the Bank of England which has relied on the pay data as a key gauge of domestic inflationary pressure. Moreover, the rise in unemployment rate paints a picture of a less tight labour market. The exact timing of the first rate cut will be a hot debate for the monetary policy committee in the coming months’

Elsewhere, gloomy trading conditions may further stymie GBP ahead of tomorrow’s high impact inflation report. In the meantime, GBP is managing to gain ground in places, amid weakness in acutely risk-sensitive currencies.

Euro pound exchange rate forecast: UK inflation in focus

Coming up, the UK’s latest inflation data is due out on Wednesday morning. Economists forecast that headline inflation will have eased in March to 3.1%, notably slipping from February’s 3.4%. In addition to this core inflation is expected t have cooled last month to 4.1%, from 4.5% in the month prior.

Also due for release is the Eurozone’s finalised inflation rate. Confirmation that inflation cooled to 2.4% in March could further damage EUR exchange rates.