EUR/GBP remains depressed below 0.8400 following dull Eurozone data
- Weak Eurozone data is keeping the Euro on its back foot on Wednesday.
- Comments from ECB officials have increased hopes of a June cut.
- Strong UK inflation and consumption have dampened expectations of further BoE easing.
The Euro is trading practically flat below the 0.8400 round level, unable to put a significant distance from the 0.8380 multi-week lows, as Eurozone data strengthens the case for further ECB easing in June.
Unemployment data from Germany released earlier today revealed that the jobless rate remained steady at 6.3%, but unemployment rose by 34K, well above the 11K expected by the market.
These figures come after the weak GfK Consumer Confidence Survey, and confirm that the Eurozone’s major economy remains stuttering.
In France, Consumer Spending increased by 0.3% in April, improving March's 1.1% decline, but still below the market expectations of a 0.8% increment. The Q1 GDP has confirmed the 0.1% growth previously estimated, while Nonfarm Payrolls decreased against expectations.
Monetary policy divergence is weighing on the Euro
Eurozone data is consistent with the comments by ECB policymakers Villeroy and Knot, pointing to further monetary easing ahead, which heightened hopes of another rate cut after June's meeting, and sent the Euro lower across the board.
The Pound, on the other hand, is showing a firmer stance. The unexpectedly strong UK inflation and retail consumption figures seen last week have prompted investors to dial back hopes for a BoE rate cut in August, which is fuelling speculative demand for the GBP.
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.