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GBP/EUR at 1.20+

GBP/EUR at 1.20+

The notable absence of QE and a rather upbeat assessment of the US economic outlook fuelled the risk-on sentiment overnight. US stocks closed in the green, Asia following suit (Hang Seng moving in the opposite direction). Indeed with the decline in unemployment appearing to gather pace albeit still “elevated”) coupled with the signs that the strains in the global financial markets have eased (although continue to pose significant downside risks to the economic outlook) the Fed stated that it expected moderate economic growth.

Meanwhile in the UK, we look for a 5,000 rise in the February claimant count in line with market expectations. February 2009 saw a 136,000 increase which remains the largest rise in recent history and a reminder that there is always scope for surprise in either direction. We believe that this small rise would keep the claimant count rate at 5.0%, but we are on the cusp and revisions to back data could see the rate tick-up to 5.1%, We expect wage growth to remain moderate and look for headline weekly earnings to rise by 1.9% in the three months to January relative to the same period a year ago, which keeps us in line with consensus. We are a little more pessimistic on underlying earnings, expecting a rise of just 1.8% in the three months to January relative to the same period a year ago maintaining the squeeze on real earnings.

Whilst the ILO unemployment rate should stay at 8.4% we will be interested in the age breakdown. It has been a good recession for older workers with the unemployment rate for those over 35 running around 5%. Conversely 16-17 year olds are facing an unemployment rate of 38.2%, albeit one which is off its high of 39.1%. That explains the government’s concentration on youth employment schemes. A focus which may continue for a while longer yet.

EUR/USD has initially broken below 1.3050 looking to test the key 1.30 level on the back of the US Fed announcement; however concerns continue to linger over the euro area problems with Spain agreeing to tough fiscal targets while with Greece bailout finally being signed off, thoughts are now turning to news of a possible further bailout being needed to prop up the country.

On the activity front eurozone consumer prices are expected to rise by 0.5% in February, which would leave the annual rate of growth at 2.7% in line with the flash estimate. The surprisingly strong rise in German industrial production provides some upside risk to the consensus call for a 0.5% rise in eurozone industrial production. We were surprised to the degree to which consensus has shifted down in recent days so the risk of an upward surprise looks to have risen.

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