UK Unemployment Rises for the First Time in 2 Years – GBP Exchange Rates Topple
The Pound Euro (GBP/EUR) exchange rate came under pressure on Wednesday, falling as markets reacted to some mixed readings in the UK’s labour market.
According to figures from the Office for National Statistics (ONS) the UK’s unemployment rate increased for the first time in 2 years over the December quarter, hitting 4.4% (up from the 42-year low of 4.3%).
The ONS did, however, note that the number of people in work continued to rise during this period, increasing by 88,000 alongside a 109,000 fall in the number of people classed as economically inactive.
In this respect the news is not entirely bad, with many analysts considering the reading to be more akin to a blip.
Samuel Tombs of Pantheon Economics shared his thoughts:
‘The rise in unemployment looks like a blip, although it will still instil some caution (for the bank’s monetary policy committee)’.
In other news wage growth in the UK (excluding bonuses) climbed to 2.5% in the December quarter, beating the forecast of 2.4% and the previous period’s 2.3%.
Whilst this reading is significantly below the soaring 3% inflation rate (the real wage squeeze continues), this news was still music to the ears of Sterling bulls; with a steady acceleration in wage growth liable to push the Bank of England (BoE) further towards a rate hike in May.
Nonetheless, the overwhelming market response was negative, with markets far more concerned with the unexpected rise in unemployment.
Euro (EUR) Exchange Rates Hold Strong, Unperturbed by a run of Disappointing Markit PMI Readings from the Bloc
Euro (EUR) exchange rates proved rather resilient on Wednesday, with the single currency retaining its lead over the Pound despite a run of disappointing Markit purchasing managers’ index (PMI) figures.
According to data from the bloc, Germany’s Markit manufacturing flash estimate for February printed slightly down at 60.3, below the previous 61.1 and the forecast of 60.8.
Beyond this, the Eurozone’s manufacturing index printed at 58.5, down from the previous 59.6 and the forecast of 59.1, whilst the services sector contracted to 56.7, down from 58 and the expected print of 57.8.
All of these readings are still extremely positive, however – and far higher than the 50-point mark that divides contraction from expansion.
Because of this the negative influence on the Euro was rather minimal, with markets instead predominantly focused on Friday’s looming inflation readings.
GBP/EUR Exchange Rate Forecast: UK GDP and BoE Rate Hike Prospects
The Pound Euro (GBP/EUR) exchange rate could see some support in the near-term depending on tomorrow’s UK growth readings and Friday’s Eurozone consumer price index (CPI) figures.
Markets currently expect year-on-year, 4th quarter growth in the UK to have held steady at 1.5%, with the quarterly reading similarly forecast to have held at 0.5%.
If this occurs then hawkish sentiment amongst the Monetary Policy Committee (MPC) could rise even further, particularly after BoE Governor Mark Carney’s comments today which illustrated that the central bank expects three rate hikes over the next three years, not two.
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