EUR/GBP softens to below 0.8650 after UK employment data

EUR/GBP weakens to near 0.8640 in Tuesday’s early European session.
UK Unemployment Rate steadied at 4.7% in three months to June; Claimant Count Change came in at -6.2K in July.
Potential US-Russia meeting and the ECB’s cautious stance might cap the EUR’s downside.

Lallalit Srijandorn FXStreet

The EUR/GBP cross loses traction to around 0.8640 during the early European session on Tuesday. The Pound Sterling (GBP) strengthens against the Euro (EUR) after the UK employment data. Traders will keep an eye on the Zew Survey from the Eurozone and Germany later on Tuesday.

Data released by the UK Office for National Statistics on Tuesday showed that the country’s ILO Unemployment Rate steadied at 4.7% in the three months to June versus 4.7% prior. This figure came in line with the expectations of 4.7% during the reported period.

Meanwhile, the Claimant Count Change decreased by 6.2K in July versus a decline of 15.5K prior (revised from 25.9K), below the consensus of 20.8K. The GBP attracts some buyers in an immediate reaction to the UK employment report.

The EUR’s front, potential talks between US President Donald Trump and Russian President Vladimir Putin in Alaska on Friday to end sanctions might provide some support to the shared currency. Kremlin aide Yuri Ushakov said on Thursday that Trump and Putin would meet in the coming days in what would be the first summit between leaders of the two countries since 2021.

Additionally, traders pushed back expectations for another reduction in borrowing costs from the European Central Bank (ECB) by three months. This, in turn, might cap the downside for the cross. Traders pared bets for a September cut and are only seeing odds of just over 50% for a quarter-point move at the end of the year.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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