EURGBP Flat Despite UK Jobs Improvement

The EURGBP exchange rate was flat on Tuesday despite another drop in the UK’s unemployment rate. The economy is seeing a boost from the recent reopening and services sector hires in the hospitality industry are boosting the overall outlook.

The EUR to GBP rate is trading at 0.8590 and the pair is in the middle of the April-to-May trading range.

UK employment rate shows improvement

UK employment data is showing further signs that the employment market has turned a corner, with the unemployment rate dropping to 4.8% in the first three months of the year. On the weekly data, that figure is lower still, with an average of 4.6% in the last six weeks of Q1.

The furlough scheme is still taking up the slack in the economy, but it has succeeded in slowing the rate of job losses seen in the hard-hit services sector.

Investors still expect another surge in the unemployment rate after the furlough ends, but there is hope that it will be less damaging than originally feared as the economy moves towards a full reopening.

One headwind for the jobs market is a drop in foreign worker interest despite the job advertisement market returning to pre-virus levels. Many workers have been displaced from cities, or do not trust the current reopening enough to want to return to the UK, or to start a new life there. The number of overseas job searches from western Europe and North America has halved since February 2020, according to jobs website Adzuna.

A shortage of labour could slow the services sector bounce in the months ahead as businesses struggle to find the right hiring levels. Jobseekers have also been avoiding hospitality jobs due to low wages, safety worries, and harassment from customers over Covid protocols.

EU GDP and inflation will bring volatility

The European economy will see the latest Q1 GDP figures this week and the Eurozone will be under pressure to recover from the ongoing lockdowns and try to catch up to the UK’s fast growth. Sterling was boosted by the upgrade of growth figures for the UK to 7.2% and the Eurozone will struggle to match anything close to that in the current year.

Wednesday will also see the release of inflation figures for the UK and European economies, which will also be a key release after stocks sold off on inflation fears last week. The UK is leading on the reopening and will lead on inflation, so it could be the Bank of England that first has to deal with pressure from bond markets if price pressures increase.

The BoE tapered its bond buying programme by £1bn per week at the recent MPC meeting and traders may push them to go further if inflation starts to pick up with the reopening.

The EURGBP has failed to get above the 0.8600 level and could see the pair attempt to move back to the yearly lows around the 0.8470 level.

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