- EUR/GBP trades in positive territory near 0.8450 in Tuesday’s early European session.
- UK Unemployment Rate climbed to 4.4% in three months to November; Claimant Count Change came in at 0.7K in December.
- The dovish remarks from the ECB could weigh on the shared currency.
The EUR/GBP cross extends its upside to near 0.8450 during the early European session on Tuesday. The Pound Sterling (GBP) weakens after the UK employment report. Later on Tuesday, traders will keep an eye on Germany’s ZEW Survey for January for fresh impetus.
Data released by the UK Office for National Statistics on Tuesday showed that the country’s ILO Unemployment Rate ticked higher to 4.4% in the three months to November. This figure missed the expectations of 4.3% during the reported period. Meanwhile, the Claimant Count Change increased by 0.7K in December versus -25.1K (revised from 0.3K) prior, beating the expected 10.3K figure. The GBP remains weak in an immediate reaction to the mixed UK employment report.
Additionally, an unexpected decline in the UK Retail Sales data has prompted the Bank of England's (BoE) dovish bets, which weigh on the GBP. The UK central bank is widely anticipated to cut the interest rate by 25 bps at its February meeting. The markets have priced in a total of more than 75 basis points (bps) total rate cuts throughout 2025, up from around 65 bps before the data.
On the other hand, more aggressive market bets on the European Central Bank (ECB) rate cuts could exert some selling pressure on the Euro (EUR). UBS analysts expect at least 150 bps of rate cuts from the ECB over the next 12 months. The ECB policymakers agreed in the December meeting that interest rate cuts should be approached cautiously and gradually, but they also noted that more rate cuts were likely coming given weakening price pressures.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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