EUR/GBP holds positive ground above 0.8700 after UK employment data

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The EUR/GBP cross gathers strength near 0.8710 during the early European session on Tuesday. The Pound Sterling (GBP) weakens against the Euro (EUR) after the UK employment data. Traders will keep an eye on the Zew Survey from the Eurozone and Germany later on Tuesday.

EUR/GBP strengthens around 0.8710 in Tuesday’s early European session.
UK Unemployment Rate climbed to 4.8% in three months to August; Claimant Count Change came in at 25.8K in September.
France's political crisis might cap the upside for the Euro.

Data released by the UK Office for National Statistics on Tuesday showed that the country’s ILO Unemployment Rate rose to 4.8% in the three months to August, versus 4.7% prior. This figure came in above the expectations of 4.7% during the reported period.

Meanwhile, the Claimant Count Change rose by 25.8K in September versus an increase of 17.4K prior. The GBP attracts some sellers in an immediate reaction to the UK employment report.

On the Euro front, uncertainty stemming from political instability in France might exert some selling pressure on the EUR against the GBP. President Emmanuel Macron reappointed Sebastien Lecornu as Prime Minister, who has since formed a new cabinet. However, opposition leaders Marine Le Pen and Eric Ciotti have already filed a no-confidence motion in an attempt to oust Lecornu’s government.

Traders raised their bets on future European Central Bank (ECB) rate cuts in the last few days, including late Friday, due to renewed trade tensions between the US and China. Markets have priced in nearly a 65% odds of a 25 basis points (bps) ECB rate cut by July, up from around a 45% chance on Friday before Trump’s remarks on China tariffs, and a 35% possibility in early October.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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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