Pound V euro: GBP lower after wage flop, BoE rate decision to drive exchange rate

Pound V euro: GBP lower after wage flop, BoE rate decision to drive exchange rate

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Pound exchangeGETTY

STERLING went right back to falling on Wednesday

Although Sterling enjoyed a bit of a reprieve earlier in the week, it went right back to falling on Wednesday following the release of the UK’s latest employment numbers.

The GBP/EUR exchange rate dropped from a high of €1.140 to a low of €1.131 after the report was published.

The unemployment rate remained at an over 40-year low of 4.6 per cent, but wage growth fell.

Growth in average weekly earnings including bonuses dipped from 2.3 per cent to 2.1 per cent while growth in earnings excluding bonuses came in at 1.7 per cent rather than the 2.0 per cent forecast.

With inflation climbing to a four-year high of 2.9 per cent in May, consumers will really start feeling the pinch. 

As the UK services sector accounts for over 70 per cent of total economic growth – and consumer spending is a linchpin of the services sector – the poor growth recorded in the first quarter of the year may well become the norm as 2017 continues.

The euro, meanwhile, was little effected by the Eurozone’s industrial production data, with output coming in at 0.5 per cent month-on-month (up from the previous month’s figure of 0.2 per cent) and 1.4 per cent year-on-year.

Today’s Bank of England (BoE) interest rate decision is likely to be the main cause of GBP/EUR exchange rate movement.

The central bank is due to deliver its announcement at 12:00 GMT+1.

Money excchangeGETTY

The GBP/EUR exchange rate dropped from a high of €1.140 to a low of €1.131

TorFX Currency Analyst Josh Ferry Woodard said: “The bank’s options are limited: attempt to boost economic output through additional monetary easing and the Pound could depreciate further, thus boosting import costs and driving inflation even higher. 

“Start hiking rates to counter rising inflation and the economy could grind to a halt as business investment slows due to uncertainty and increased borrowing costs. Quite a conundrum.

“Overshooting inflation and record-low unemployment would ordinarily persuade the BoE to think about hiking interest rates, but the spectre of uncertainty associated with Brexit and a hung parliament mean that a hawkish message is quite unlikely at this juncture.”

If the BoE makes any hints that it might step up easing in order to support the UK economy, the pound could fall back to post-election lows against currencies like the euro.

It will also be interesting to see if the vote remains split in light of recent events – at the last two BoE gatherings one member of the Monetary Policy Committee (MPC) voted for an immediate rate hike. 

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