EUR/GBP finds cushion near 0.8500, downside remains favored on robust UK labor data

• EUR/GBP finds support near 0.8500; more downside seems likely on upbeat UK Employment data.
• The expectations of BoE rate cuts remain lower as the UK’s wage growth remains higher than expectations.
• Eurozone’s ZEW Survey Economic Sentiment improves surprisingly for February.

The EUR/GBP pair discovers an intermediate cushion near the psychological support of 0.8500 in the European session on Tuesday. The cross is expected to resume its downward journey as the United Kingdom Office for National Statistics (ONS) has reported upbeat employment data for three months ending December.

The UK ONS reported that employers hired 72K workers, similar to reading in three months ending November. The Unemployment Rate drops sharply to 3.8% from expectations of 4.0% and the prior release of 4.2%.

Meanwhile, wage growth grew at the weakest pace in more than a year but was higher than the expectations of market participants. Average Earnings including bonuses rose at a slower pace of 5.8% against the former release of 6.7%. However, economists projected a slower wage growth rate of 5.6%.

Going forward, investors will focus on the UK inflation data for January, which will be published on Wednesday. The headline inflation is forecasted to grow by 4.2% from 4.0% in December. In the same period, the core inflation that excludes volatile food and Oil prices is anticipated to have risen by 5.2% against 5.1%.

A stubborn inflation data and a higher wage growth rate than market expectations would push back expectations of early rate cuts by the Bank of England (BoE).

On the Eurozone front, surprisingly, the ZEW Survey – Economic Sentiment for February rose to 25.0 from 22.7 in January. Investors projected the economic sentiment to fade to 20.1. This has brought some strength to the Euro but is insignificant to get underpinned against the Pound Sterling.