EUR GBP Higher Again Despite Strong UK Employment Data

The EURGBP exchange rate was trading higher for a fifth-consecutive day despite the latest UK employment data being positive for sterling. The euro also saw GDP for the second quarter coming in at 2% as expected capping a better three months for the Eurozone.

The EUR to GBP rate is trading at 0.8525 as the pair bounces from yearly lows at 0.8450.

Eurozone growth confirmed at 2% for second quarter

The eurozone economy grew by 2% in the second quarter, according to the European Union statistics office on Tuesday. The reading confirmed the earlier report as the economy saw an increase in activity following the reopening of some of the economy.

In a separate report, Eurostat also noted that employment in the bloc grew 0.5% in the April-June period compared to the previous quarter, which was also in line with forecasts of economists polled by Reuters.

The 2% increase of GDP was also paired with a 13.6% rise year-on-year from the worst stage of the pandemic. That number was revised slightly lower from the earlier estimate of 13.7%.

The UK is still leading the way on growth at 4.8% in the second quarter, but traders are reluctant to buy the pound sterling after it saw yearly highs versus the euro recently. A rise in covid-related fatalities has also put the brakes on the pound’s rally and led to profit-taking.

UK employment improves again with record vacancies

The Office for National Statistics (ONS) said yesterday that the number of people in employment rose by 182,000 to 28.9 million last month.

The UK’s unemployment rate dropped to 4.7% in the three months to the end of June, from 4.8% previously, according to the ONS. “The world of work continues to rebound robustly from the effects of the pandemic,” said Jonathan Athow, statistician at the agency.

The UK also saw higher wage growth which could put upward pressure on inflation and prompt the Bank of England to raise interest rates sooner, some economists predict.

June’s 8.8% wage growth was higher than the 8.5% pay growth the BoE was expecting. But several economists believe that labour shortages and pay rises will drop in a few months’ time, especially as the government’s furlough scheme ends after September.

Martin Beck, senior economic advisor to the EY ITEM Club, said:

“The speed at which the jobs market is recovering continues to surprise to the upside… the jobless rate could feasibly creep up in the short-term: an easing of restrictions has made searching for a job easier, and this could result in people moving from inactivity to seeking a job… But the risk of a serious increase in joblessness when the furlough scheme closes in September looks low. Job vacancies passed 1 million in July for the first time ever, and the ONS’ latest BIC survey showed the share of workers on furlough falling to 3.7% in late July.”

With record job vacancies The British Chambers of Commerce warned that recruitment difficulties could have a detrimental effect on the economy.

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