- EUR/GBP trades on a firmer note around 0.8390 in Thursday’s early European session.
- UK Unemployment Rate held steady at 4.4% in three months to January; Claimant Count Change came in at 44.2K in February.
- The BoE is expected to keep interest rates on hold at 4.5% on Thursday.
- German parliament approves Merz's historic spending surge.
The EUR/GBP cross holds positive ground near 0.8390 during the early European trading hours on Thursday. The Pound Sterling (GBP) softens against the Euro (EUR) after the UK employment report. The attention will shift to the Bank of England’s (BOE) interest rate decision, with no change in rate expected.
Data released by the UK Office for National Statistics on Thursday showed that the country’s ILO Unemployment Rate climbed to 4.4% in the three months to January. This figure came in line with the expectations of 4.4% during the reported period. Meanwhile, the Claimant Count Change rose by 44.2K in February versus 2.8K prior, missing the estimated 7.9K figure. The GBP remains weak in an immediate reaction to the UK employment report.
The BoE is expected to keep interest rates on hold on Thursday and stick to its mantra of gradual moves amid the heightened economic uncertainty. The markets anticipate the UK central bank to leave its benchmark interest rate on hold at 4.5%, with the next cut likely in May, followed by further reductions in August and November, according to the majority of economists polled by Reuters last week.
On the Euro front, Germany's parliament approved plans for a massive spending surge on Tuesday. This positive development could provide some support to the shared currency, as the plan would provide the chancellor-in-waiting with a windfall of hundreds of billions of euros to boost investment after two years of contraction in Europe's largest economy.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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