- Euro Pound Exchange Rate Depreciates on Falling UK Unemployment – Jobless levels in Britain hit lowest figures since 2005.
- European Central Bank set to Keep Rates on Hold – Euro enjoys bolstered demand as analysts agree ECB is likely to hold off.
- Collapse of London Skyscraper Builders Dunne Puts UK Construction Sector at Risk – 500 jobs lost as the firm folds due to ‘severe cash flow problems’.
- EUR/GBP Forecast to Rally on ECB Leaving Rates Unchanged.
Euro Pound Exchange Rate Advances after ECB Announcement as UK Data Disappoints
The Euro Pound exchange rate gained on Thursday morning as GBP was driven lower by less-than-impressive UK retail sales data.
Despite concerns relating to the impact of the UK’s decision to Brexit on the Eurozone’s economy, the European Central Bank (ECB) decided to leave fiscal policy unchanged at today’s policy meeting.
However, the tone adopted by ECB President Mario Draghi in his accompanying statement will be crucial to further EUR movement.
As it stands, the EUR GBP exchange rate is trending in the region of 0.8348.
(Previously updated 08:00 20/07/2016)
The Euro Pound exchange rate had previously shown a notable rally over Tuesday, but by the time Wednesday’s session entered full swing, the Pound was back on the front foot as unexpectedly favourable jobs data was released, inspiring a spike in Sterling demand.
The Pound advanced across the board in response to upbeat domestic data and the shifting odds of the Bank of England (BoE) introducing near-term stimulus measures.
Unemployment fell to the lowest level seen since 2005 while the number of people claiming jobseekers allowance rose by a smaller than expected figure of 400 compared to a forecasted 3500.
With the European Central Bank meeting looming over today, the Euro experienced some demand over the course of yesterday as a large portion of analysts are in agreement that the (ECB) will elect to keep rates on hold in a similar fashion to the Bank of England.
Before the session ended yesterday, the Euro Pound exchange rate was trading at 0.8354 after depreciating almost 0.60% over the course of the day.
Euro (EUR) Demand Remains as ECB Still Appears Unlikely to Loosen Policy
A group of low-impact ecostats released yesterday morning did little to enact any further upward pressure on the single currency as the Euro continued to be propped up by the likelihood of the ECB leaving rates on hold at today’s policy meeting.
It has become somewhat clear that the European Central bank will adopt the same approach as the Bank of England in regards to a rate decision later today. That is to say, the ECB will likely await further data from the post-Brexit period to print before making any hasty changes to monetary policy.
In reaction to the likelihood that the ECB will hold off on stimulus for now, the Euro saw steady demand over yesterday’s session.
However, the central bank’s quantitative easing scheme looks to be under threat as more government securities fall into incredibly low or even negative yields due to tumultuous markets seeing traders reach towards more secure assets.
If uncertainty continues to foster in the global economy and investors keep fleeing into safe-haven assets, some analysts posit that the European Central Bank could run out of eligible bonds before the end of the year. Already over half of German Bunds have become ineligible for purchase.
However there is no easy way for the ECB to remedy these issues as a recent piece in the Financial Times highlights:
‘The ECB’s ultra-loose monetary policy is already a deeply controversial issue in Germany, where negative interest rates have been widely denounced as hurting savers. Some of the possible solutions to any shortage of eligible bonds for QE would also be heavily politically charged in the country.
The ECB has insisted in the past that scarcity is not a problem and that the design of QE is flexible enough to accommodate any shortages.’
Sterling (GBP) Finds Favour among Investors as Labour Market Data Wows Forecasts
The Pound stayed in high demand over the course of yesterday’s session thanks to the over-performing jobs data that printed early yesterday morning.
The figures showed unemployment drop to a low last seen in 2005 while new claimants for job seeker’s allowance only increased by 400, against a forecast of 3500. However, the increase in employment could prove something of a façade as self-employed work in the UK has increased to cover 15.1% of the workforce.
Trade Union Centre (TUC) Secretary General Frances O’Grady commented:
‘While it’s good to see more people in work, the huge increase in self-employment raises questions about the nature of these jobs.
These newly self-employed workers are not all budding entrepreneurs. Many don’t choose self-employment, being forced into contracts with fewer rights, less pay and no job security.
We need more decent jobs. Not working conditions like those exposed at the courier firm Hermes these week, where workers were pushed on to self-employed contracts with fewer rights.’
Since all the data so far has come from the mostly pre-Brexit June period, all ecostats from July are likely to post marked declines compared to the latest prints as the real-world impact of the Brexit will be thrust to the forefront. Calls that the economy has fared better than expected seem premature thus far.
Earlier in the week we saw civil engineering firm Dunne Group collapse due to ‘severe cash flow issues’. More than 500 jobs were lost as the construction business ceased trading with ‘immediate effect’. The UK’s construction sector has so far failed to recuperate after the 2008 Great Recession and for the Dunne Group to fold puts the sector in an even more unsure footing.
Euro Pound Exchange Rate set to Rally on ECB Rate Hold
UK retail figures are set for release later this morning along with various government spending reports.
Usually government spending holds fair sway over the Pound but the emerging post-Brexit circumstances could well see the releases fall on deaf ears as analysts, central bankers and traders await data from July.
Retail spending is forecast to fall and if the reports highlight a significant decline in consumer confidence, the Pound is likely to be wounded.
The most import upcoming release for the Euro will be this afternoon’s ECB rate decision and accompanying speech.
The common currency is likely to see a boost in demand if the European Central Bank keeps rates on hold as expected, however, if Mario Draghi’s post-announcement speech exudes overly dovish undertones, the gains could well be short lived and the Euro Pound exchange rate would see a marked decline.