The pound strengthened on Monday as GBP investors welcomed the UK government’s U-turn on high-income tax cuts.
Meanwhile, the pound is subdued so far this morning, with GBP/EUR flat at €1.1973 and GBP/USD edging higher at $1.3688. GBP/CAD is slipping at C$1.7128, while GBP/AUD and GBP/NZD are muted at AU$1.8954 and NZ$2.0078, respectively.
Looking ahead, will an upbeat UK jobs report help to push GBP exchange rates higher this week?
What’s been happening?The pound edged higher at the end of last week following the publication of the UK’s monthly GDP release.
While traders welcomed the larger-than-expected bump in growth in November as it helped to return the UK economy to pre-Covid levels, warnings it would slip again due to the emergence of Omicron in December tempered Sterling’s gains.
The euro was left to trade sideways on Friday as German GDP printed in line with expectations in 2021, while European Central Bank (ECB) President Christine Lagarde reiterated that the ECB believes inflation will soon begin to ease.
At the same time, the US dollar struck higher at the end of last week as a shock contraction in US retail sales last month, as well as a selloff in equity markets, spooked investors and saw them favour the safe-haven ‘Greenback’.
What’s coming up?Turning to this week, the focus in the first half of the session will likely be on the publication of the UK’s latest jobs report.
November’s figures are expected to report the unemployment rate held steady at 4.2% while wage growth continued to lag behind inflation. This could place more pressure on the Bank of England (BoE) to accelerate its tightening cycle and help to buoy the pound.
For EUR investors, the spotlight will be on the latest ZEW surveys from Germany. Will an improvement in economic sentiment in the Eurozone’s largest economy at the start of 2022 lend support to the euro?
Meanwhile, with the USD data calendar looking sparse through the first half of the week, the direction of the ‘greenback’ may be driven primarily by market sentiment, likely weakening if the mood remains broadly positive.
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