Euro pulls back against a stronger Pound following upbeat UK employment data

EUR/GBP retreats below 0.8500 but remains within the previous days' ranges.
UK unemployment remained steady, against market expectations of an increase in May.
Geopolitical tensions and the recent surge in Oil prices are keeping Euro rallies subdued.

Guillermo Alcala FXStreet

The Euro (EUR) posts moderate losses against the British Pound (GBP) on Tuesday, yet trading within recent ranges. The EUR/GBP pair has pulled back below 0.8500, from highs around 0.8515 on Friday, weighed by growing geopolitical tensions and surging Oil prices, while in the UK, employment figures have provided some support to the Pound.

The UK ILO Unemployment Rate remained steady at 4.9% in the three months before May, against expectations of an increase to 5%. Besides, unemployment claimants rose by 6.7K, well below the 28.3K forecast by market analysts, while April's Claimant Count Change was revised down to 1.3K from previous estimates of 31.2 K. The impact of these data on the Pound, however, has been moderate so far.

Burnham pledges some flexibility on fiscal rules

On Monday, Andrew Burnham was nominated Prime Minister and, once again, reiterated that he will stick to the fiscal rules set by the previous cabinet. Burnham, however, flagged some flexibility within the rules to achieve a set of measures to alleviate the cost of living, which was enough to send shivers through Pound crosses.

Meanwhile, geopolitical uncertainty keeps weighing on sentiment, and acting as a headwind for Euro rallies. The US military hit targets in Iran for the 10th day, and the Tehran-backed Houthis announced a blockade of Saudi Arabian Oil exports, a move that might increase concerns about a supply Shortage

Crude prices, however, have ticked lower from the six -week highs hit on Monday as reports that mediators have delivered a proposal for a 10-day ceasefire to Iranian authorities have offered a glimpse of hope for some de-escalation.

In Europe, later on the day, the ZEW Economic Sentiment Survey will provide some fundamental guidance for the common currency, although the highlight of the week is the European Central Bank’s (ECB) Monetary Policy decision on Thursday. The bank is widely expected to leave rates on hold, but investors will be eager to assess the chances of another 25 basis points rate hike in September.

Economic Indicator

ILO Unemployment Rate (3M)

The ILO Unemployment Rate released by the UK Office for National Statistics is the number of unemployed workers divided by the total civilian labor force. It is a leading indicator for the UK Economy. If the rate goes up, it indicates a lack of expansion within the UK labor market. As a result, a rise leads to a weakening of the UK economy. Generally, a decrease of the figure is seen as bullish for the Pound Sterling (GBP), while an increase is seen as bearish.

Why it matters to traders?

The Unemployment Rate is the broadest indicator of Britain’s labor market. The figure is highlighted by the broad media, beyond the financial sector, giving the publication a more significant impact despite its late publication. It is released around six weeks after the month ends. While the Bank of England is tasked with maintaining price stability, there is a substantial inverse correlation between unemployment and inflation. A higher than expected figure tends to be GBP-bearish.

Economic Indicator

Claimant Count Change

The Claimant Count Change released by the UK Office for National Statistics presents the change in the number of unemployed people in the UK claiming benefits. There is a tendency for the metric to influence GBP volatility. Usually, a rise in the indicator has negative implications for consumer spending and economic growth. Generally, a high reading is seen as bearish for the Pound Sterling (GBP), while a low reading is seen as bullish.

Why it matters to traders?

The change in the number of those claiming jobless benefits is an early gauge of the UK’s labor market. The figures are released for the previous month, contrary to the Unemployment Rate, which is for the prior one. This release is scheduled around the middle of the month. An increase in applications is a sign of a worsening economic situation and implies looser monetary policy, while a decrease indicates improving conditions. A higher-than-expected outcome tends to be GBP-bearish.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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