Euro (EUR) Strong as German Unemployment Falls
The German Unemployment rate unexpectedly dropped in January, according to figures released today. Unemployment had expected to remain level at 6.3% but instead fell to 6.2%. 8,000 people were forecast to find work during the past month, but the actual figure was more than double the predictions, coming in a 20,000. The total number of people out of work fell to 2.73 million.
Pound (GBP) Softened by Cameron EU Negotiation Setback
David Cameron has failed to secure a deal with European Commission President Donald Tusk, eradicating the gains made earlier in the day by Pound Sterling. Tusk did admit that the UK’s current situation did qualify the country for the ‘emergency brake’ system, which Cameron is seeking to use to suspend benefit payments to migrants for four years. However, this latest setback has cast doubts over whether a deal will be reached in time to hold the ‘Brexit’ referendum in the summer as originally planned.
In order for the referendum to be held in June as intended, the Prime Minister must agree a deal with the rest of the EU leaders by early March at the latest.
The rate of lending to consumers fell in December, buoying Pound Sterling as concerns over unsustainable debt levels eased. Meanwhile, the Euro has been softened by poor manufacturing data from several Eurozone countries, although its weak performance against the Pound is incongruous in a day of bullish gains elsewhere.
Falling UK Consumer Credit Softens Fears of Debt Burden: GBP/EUR Advances
UK Net Consumer Credit has fallen more-than-expected, down from £1479 billion to £1169 billion. The rate of net lending to individuals dropped from £5.35 billion in November to £4.4 billion in December and while the number of Mortgage Approvals rose slightly to 70.48k in December, after November’s 70.42k approvals, the value of mortgage lending fell from £3.8 billion to £3.2 billion.
The softening pace of UK lending will relieve those economists who have been warning that consumer credit had reached unsustainable levels. November’s figures showed the fastest increase in lending to consumers for nearly 10 years: an 8.3% year-on-year rise. The high levels of debt were causing concern after the stagnant growth in the UK economy, with consumer borrowing rising in order to fuel spending.
The Pound has also been strengthened by a better-than-expected Manufacturing PMI, which rose to 52.9 instead of falling to 51.8 as predicted.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3176.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Softened by Mixed Eurozone PMIs
PMIs for manufacturing sectors across Eurozone countries have mostly showed a slowdown in growth today, weakening the Euro against Pound Sterling, although the common currency continues to perform bullishly against the majority of currencies. While the Spanish index rose much further-than-expected to hit 55.4, up from 53 previously, most other indexes saw a slowdown in activity.
The Italian index fell from 54.9 to 53.2, Germany’s PMI sipped from 53.2 to 52.3 and the French PMI dropped from 51.4 to 50.0, which means the industry saw no growth on the previous month. After marginal growth the month before, the Greek manufacturing sector also saw stagnation in January. The overall Eurozone manufacturing PMI slid from 53.2 to 52.3.
According to Markit Chief Economist Chris Williamson, ‘If the slowdown in business activity wasn’t enough to worry policymakers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained. The survey data signal an annual rate of growth of manufacturing output of just 1.5% at the start of the year. As such, the data are likely to add to pressure on the ECB to expand the central bank’s stimulus programme as soon as March.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading between 0.7590 and 0.7614.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Forecast: German Unemployment Data Tomorrow
Tomorrow sees the release of German Unemployment Change and Unemployment Rate figures. The rate of joblessness is expected to remain at 6.3%, while 8,000 people are anticipated to have found work: a drop in last month’s figures of 14,000. The Eurozone Unemployment Rate is also due out and is expected to hold steady at 10.5%.
The UK Markit/CIPS Construction PMI is expected to show a slight drop from 57.8 to 57.5, which still shows a strong rate of growth.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading between 1.3123 and 1.3197.