Wednesday, 17 February 2016

UK employment data sends the Pound higher

Sterling/Euro rates seem to be yo-yoing at the moment. Today we have seen the rate climb back towards €1.29. The reason for this mornings spike was the latest UK employment data.

Unemployment is now around 5%, the lowest it's been since 2008. Average earnings increased by 1.9% and the numbers claiming unemployment benefit dropped by 15,000. All in all this reflects a pretty robust UK economy that is significantly outperforming those in Europe. As such the Pound has risen against other currencies.

I don't expect the rise to continue however, and I think we will see the pair continue to fall lower in the coming days. We have the ongoing EU referendum uncertainty that is likely to hinder any significant recovery for Sterling.

When looking at a currency pair such as Sterling/Euro, it's important to look at both the UK economy and also the EU, because another reason the GBP/EUR rate may fall is the fact  the Euro may gain strength in the coming weeks and become more expensive to buy. The issue of extremely low oil and commodity prices is giving investors the jitters, and driving safe haven currencies higher. The Euro is seen as a safe bet in times of economic uncertainty, even more so now due to the EU referendum making the Pound less attractive. With the global economy stuttering, I think the trend of GBP/EUR falling will continue as the week progresses.

The EU summit this week could also provide some volatility for Sterling, so the market is highly unlikely to remain flat for long.

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