At the time of writing GBP/EUR was trading at €1.1623, down approximately 0.2% from Tuesday’s opening rate.

Pound (GBP) Slumps on Weak Jobs Data

The Pound (GBP) faced headwinds on Tuesday following the latest set of British employment data.

Unemployment rose for the second consecutive month, reaching 4.3% between January-March 2024, and reaching its highest level since the summer months last year.

Though the data print as forecast, analysts expressed that deteriorations within the labour market may well apply renewed pressure on the Bank of England (BoE) to begin loosening monetary policy, as restrictive economic conditions begin to take a toll on UK employment conditions.

Yael Selfin, Chief Economist at KMPG, explains: ‘There were signs of some increased momentum in regular pay, with wage growth rising across a range of sectors in March. However, we expect overall headline wage growth to slow in the coming months on the back of weaker hiring activity. Next month will be key in terms of pay data as it will provide initial evidence of the impact of April’s National Living Wage increase. If it 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 placing the likelihood of a June rate cut at 50%, Sterling struggled to regain its upside as the session progressed.

Euro (EUR) Ticks Up on Improving Morale

The Euro (EUR) edged higher on Tuesday following some high-impact German macroeconomic releases.

Firstly, the latest German ZEW economic sentiment indicator came in higher than forecast. The index surged to its highest level since February 2022, printing at 47.1 in May, beating market projections of 46 and leaping up from April’s reading of 42.1.

Professor Achim Wambach on the survey results, ZEW President, noted the rapidly improving economic sentiment across Germany, stating: ‘The confidence increases. Following the stronger-than-expected growth of the German economy in the first quarter of 2024, both the assessment of the current situation and economic expectations have become more favourable. 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, the latest German inflation print served to cap EUR’s upside, with headline inflation easing to 2.2% in April’s annualised figure. Confirmation that inflation in the Eurozone’s largest economy is rapidly approaching the central bank’s 2% target saw EUR make limited gains.

Pound Euro Exchange Rate Forecast: Eurozone Industrial Production in Spotlight

Looking ahead, the Eurozone’s latest industrial production data is due out on Wednesday. Markets forecast a notable slump in factory output across the Eurozone in March, dipping to -0.2%, significantly retreating from an 8% surge in the previous month.

A data-light calendar in the UK this week may see the increasingly risk-sensitive Pound trade according to market risk-dynamics. Any upbeat trading conditions may lift Sterling against its safe-haven peers, while gloomy trade could see the riskier asset slump.