020 7898 0500
Markets were left bemused by the UK's seemingly incongruous jobs data. Editorial credit: Andriy Blokhin, via Shutterstock.
The pound took a bit of a battering on Tuesday as September’s unexpectedly poor employment report triggered a steep fall. Given its recent strength, GBP/EUR’s fall of three quarters of a cent meant it only retreated to where it ended last week. Yet against the US dollar, the pound ended yesterday’s session at its lowest level since the beginning of August.
The combination of rising unemployment and higher wage growth left many questioning what the Bank of England’s next move would be. It seems the snap conclusion was an increased likelihood of a December cut, although that narrative could change quickly based on the series of key data points sterling must first negotiate.
Average earnings drew particular attention. Excluding bonuses, UK workers recorded an average annual pay rise of 4.3% in the past three months, well above the expected 3.9%. Taken together with rising unemployment, that left markets questioning sterling’s trajectory with the BoE still to announce a last interest rate decision of 2024 next month.
EUR/USD fell by around a third of a per cent on the day. The German ZEW economic sentiment study provided more bad news, falling to 7.4 in November after bouncing back last month. Interestingly, much of the gloom was generated by news of Donald Trump’s win in the US presidential election. Economic perceptions of the USA increased, while those of the eurozone and China fell in the latest report.
Germany’s political leaders agreed to hold a snap election on 23 February after the collapse of the ruling coalition last week. One positive for chancellor Olaf Scholz is that his sacking of finance minister Christian Linder has led to an unexpected boost in his popularity. However, Scholz’s SPD party still languish behind the Christian Democrats and the far-right Alternative für Deutschland (AFD) in the latest polls.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: What path does sterling take?
The pound faces a tough stretch to the end of the year now that markets have digested the employment report. The Bank is in a bit of a bind: does it cut rates to reduce unemployment or hold them to prevent increased earnings resulting in resurgent inflation. Sterling’s near-term trajectory may rest on this key decision.
GBP/USD: the past year
EUR: ZEW highlights political unease
The latest ZEW report gave an insight into the euro’s recent struggles. Through the lens of German respondents, it’s possible to see a current of political uncertainty. From Trump to Scholz, the single currency is being weighed down by an unstable landscape. A serious improvement in its outlook looks unlikely without a period of calm.
GBP/EUR: the past year
USD: The first test
Today’s inflation data represents the first real test (outside of the Federal Reserve’s widely expected decision last week) since the election. Inflation is projected to have remained largely unmoved in October but the slightest of falls could be the difference between a weaker US dollar and more pain for European currencies.
EUR/USD: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 7898 0500 or your Private Client Account Manager on 020 7898 0541.
