Pound to Euro Slides after Labour Market Shock

– Written by


Frank Davies

STORY LINK Pound to Euro Slides after Labour Market Shock

The Pound Euro (GBP/EUR) exchange rate slipped to its lowest level in over a week on Tuesday after disappointing UK labour market figures weighed on Sterling.

At the time of writing, GBP/EUR was trading at €1.1474, down roughly 0.2% from its opening levels, but off an earlier low of €1.1453.

The Pound came under heavy selling pressure at the start of Tuesday’s European trading session after the Office for National Statistics released its latest labour market report.

The figures revealed unemployment climbed to 5.2% in the three months to December – a five-year high – rather than remaining steady at 5.1% as forecast. At the same time, average earnings growth slowed to its weakest rate since August 2024, adding to signs that the UK jobs market is struggling.

For investors, the data reinforced the view that the Bank of England will cut interest rates at its March meeting. Expectations for looser monetary policy gathered pace in response, dragging Sterling lower in early trade.

However, while the Pound initially slumped on the news, it later pared back some of its losses as the session progressed.

The Euro initially climbed to its highest level in over a week against the weakening Pound, taking advantage of Sterling’s post-data slump. However, the single currency struggled to sustain that upward momentum for long.

Pressure emerged following the release of Germany’s latest ZEW economic sentiment index. Rather than improving as expected, investor confidence slipped unexpectedly this month, with the index easing from 59.6 to 58.3 instead of rising to 65.

The softer-than-forecast reading tempered the Euro’s advance, prompting the currency to retreat from its intraday peak. Even so, despite surrendering some of its earlier gains, the Euro remained firmly in positive territory against the Pound.

GBP/EUR Forecast: Pound Braces for UK Inflation Data

The Pound will face its next key hurdle with the release of the UK’s latest consumer price index, a report that could play a decisive role in shaping near-term expectations for Bank of England policy.

Economists predict headline inflation eased at the start of the year, with CPI forecast to fall from 3.4% to 3%. Core inflation is also expected to dip slightly from 3.2% to 3.1%.

If the data confirms price pressures are continuing to cool, investors may strengthen conviction that the Bank of England can move ahead with interest rate cuts sooner rather than later, leaving Sterling vulnerable. Conversely, if inflation proves more stubborn than forecast, the Pound may find support as rate cut expectations are pared back.

The Euro, meanwhile, lacks major domestic data catalysts in the near term. In the absence of fresh figures, movement in the single currency may hinge on remarks from European Central Bank officials, which could inject volatility into EUR exchange rates.

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TAGS: Pound Euro Forecasts