British Pound to Euro Forecast: GBP Dips Amid Weak Labour Market

– Written by


Frank Davies

STORY LINK British Pound to Euro Forecast: GBP Dips Amid Weak Labour Market

The Pound to Euro (GBP/EUR) exchange rate traded close to the 1.15 level on Tuesday as markets digested the latest UK labour market release.

At the time of writing, GBP/EUR traded at 1.14819 (-0.15%).

Fresh UK employment figures weakened Sterling sentiment, with headline earnings rising 4.2% against expectations of 4.6% while private sector regular pay held at 3.4%.

The unemployment rate increased to 5.2% in the fourth quarter, above the 5.1% consensus and the highest level in nearly five years.

The softer data reinforced expectations for Bank of England easing, with markets increasing pricing for the March meeting and limiting Pound upside attempts.

Firm equity markets still provided some background support to Sterling, but the 1.15 level remained an important technical barrier for GBP/EUR.

Positioning data continued to point to solid Euro demand. Recent CFTC positioning showed elevated long Euro exposure, increasing the risk of a correction if incoming Eurozone data disappoints.

Credit Agricole noted scope for a potential recovery in Sterling: “In all, we continue to think that UK rates markets have a relatively dovish outlook on the BoE and that, therefore, many negatives are in the price of the GBP.”

Attention now turns to the next round of UK data including inflation and PMI business confidence figures, which will help determine whether rate-cut expectations continue to build.

Markets remain confident that the Bank of England will begin cutting interest rates in the near term, and expectations of faster easing continue to act as a headwind for the Pound.

GBP/EUR Forecast: Inflation Data Key for Break Above 1.15

The Pound faces an important test from upcoming inflation and activity data.

Any further evidence of cooling inflation pressures or slowing economic momentum would reinforce expectations for monetary easing and could keep GBP/EUR capped below the 1.15 level.

Pepperstone strategist Michael Brown commented: “Not only is this meagre pace not worth celebrating at all – despite some in Westminster popping the champagne post-release – it must also be set in the context of an economy that has grown at a quarterly clip over 0.5% in just 3 of the last 15 quarters, but also one where risks to the outlook continue to tilt firmly to the downside.”

Stronger-than-expected inflation or activity readings would help support Sterling and potentially allow a sustained move above 1.15.

Overall, near-term direction will depend on whether incoming UK data challenges or reinforces expectations for Bank of England rate cuts.

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TAGS: Pound Euro Forecasts