GBP/EUR strikes two-week low amid slowing UK labour market

Philip McHugh October 18th 2023 - 2 minute read

The pound stumbled on Tuesday in response to data that suggests the UK labour market is slowing.

Sterling is trading in a wide range so far this morning, with GBP/EUR flat at €1.1521 and GBP/USD buoyed at $1.2201. GBP/CAD is rangebound at CA$1.6619, while GBP/AUD and GBP/NZD slide to AU$1.9092 and NZ$2.0616, respectively.

Looking ahead, will hotter-than-expected UK inflation help GBP exchange rates to rebound today?

What’s been happening?

The pound trended lower through yesterday’s session following the publication of the UK’s latest jobs report.

Data published by the Office for National Statistics (ONS) showed that average earnings (excluding bonuses) slowed from an upwardly revised 7.9% to 7.8% in August. Accompanying data showed vacancies in the UK fell in the three months to September.

This stoked fears that the UK labour market is slowing, causing Sterling to fall as Bank of England (BoE) interest rate expectations weakened.

The euro, meanwhile, rallied on Tuesday as the ZEW indicator of economic sentiment for Germany smashed expectations in October, with the index reporting its strongest reading since April, stoking hopes that Germany’s recent economic woes are improving.

The US dollar also firmed yesterday after a stronger-than-expected US retail sales print.

What’s coming up?

Today’s session opened with the publication of the UK’s consumer price index.

The CPI figures showed that headline UK inflation held at 6.7% in September, rather than falling as forecast, while core inflation cooled at a slower-than-expected pace.

The inflation figures may help to underpin the pound today, amid hopes they could encourage the BoE to raise interest rates again.

Later this morning the focus will turn to a speech by European Central Bank (ECB) President Christine Lagarde. Lagarde could bolster the euro if she suggests the ECB hasn’t completely ruled out another interest rate hike.

Also potentially influencing EUR exchange rates will be the publication of the Eurozone’s own CPI figures. September’s finalised CPI release is expected to confirm inflation in the bloc slowed to a two-year low and could limit demand for the euro this morning.

Meanwhile, in the absence of any high-impact USD data, movement in the US dollar may be driven by market risk dynamics. Could a cautious market mood see investors favour the safe-haven currency?

Written by
Philip McHugh

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