Pound V euro: GBP trades tightly despite optimistic BoE jobs forecast
THE pound to euro exchange rate has seen minor losses today, although this is mainly down to a stronger euro than any Sterling weakness.
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Recent economic news has been broadly positive for the UK, with Bank of England (BoE) policymaker Michael Saunders forecasting historically low unemployment.
Mr Saunders, who votes on BoE interest rate decisions, said: “My hunch is that the labour market will probably tighten further this year, with the jobless rate dropping to – and perhaps even below – 4 per cent during 2018.”
In theory, lower unemployment should increase UK wage growth, as a smaller labour pool means a higher incentive to increase employee salaries.
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Mr Saunders added that the UK could finally break out of its low productivity slump.
He said: “I do not believe that the UK is inevitably locked into persistent low productivity growth.
“Technological innovation remains high and there is ample scope for UK productivity to catch up to the higher levels elsewhere, for example, the US and Germany."
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I do not believe that the UK is inevitably locked into persistent low productivity growth
Over in the Eurozone, hopes are growing about the possibility of a German ‘grand coalition’ being announced in the coming weeks.
Optimism over an agreement between the CDU/CSU union and SPD Party has pushed the euro to pound exchange rate higher.
The main turning point has been the belief that SPD factions will not rebel against a coalition, as this may damage their party’s popularity.
Germany has been without a functioning government since September 2017, so the pressure is growing daily to see an agreeable resolution to the lengthy talks.
Meanwhile, the pound could regain lost ground against the euro on Friday morning if UK retail sales figures for December are positive.
Current estimates are for growing year-on-year sales during the Christmas period, but falling month-on-month readings.
Strong December sales are something of a necessity for some retailers, who rely on the annual Christmas spending spree to bump up their revenues.
However, if the sales figures disappoint, the pound could drop sharply against the euro.
The euro might not see significant movement until next Tuesday, when economic sentiment readings for the Eurozone will be released.
Forecasts are for lower economic confidence in the overall Eurozone, but greater optimism with regards to the German economy.
The German economic reading is considered more high-impact, so the euro could appreciate if there is a forecast-matching result.
