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EUR/GBP weakens below 0.8300 after mixed UK employment data

EUR/GBP softens to around 0.8295 in Tuesday’s early European session.
UK Unemployment Rate held steady at 4.4% in three months to December; Claimant Count Change came in at 22K in January.
The dovish mood surrounding the ECB could weigh on the Euro.

Lallalit Srijandorn FXStreet

The EUR/GBP cross edges lower to near 0.8295 during the early European trading hours on Tuesday. The Pound Sterling (GBP) strengthens after the UK employment report. Later on Tuesday, investors will keep an eye on the Bank of England’s (BOE) Governor Andrew Bailey speech and Germany’s ZEW Survey for February.

Data released by the UK Office for National Statistics on Tuesday showed that the country’s ILO Unemployment Rate remained steady at 4.4% in the three months to December. This figure beated the expectations of 4.5% during the reported period. Meanwhile, the Claimant Count Change increased by 22K in January versus -15.1K prior (revised from 0.7K), missing the estimated 10K figure. The GBP remains firm in an immediate reaction to the mixed UK employment report.

Earlier this month, the BoE cut its benchmark interest rate to 4.50% from 4.75%. The UK central bank policymakers said inflation was likely to hit 3.7% later this year, almost double the BoE's 2% target. This might trigger the BoE to add the word "careful" to its message about a likely "gradual" further reduction in borrowing costs.

On the Euro front, the dovish stance from the European Central Bank (ECB) might drag the Euro (EUR) lower against the GBP. The ECB policymakers remain comfortable with the outlook for three more rate cuts this year, following a 25 basis points (bps) reduction to 2.75% last month.

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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