- EUR/GBP ranges around 0.8525 while investors are expected to reassess their expectations about the BOE monetary policy perspective.
- Bailey of the BOE warned about the risks in the labor market due to an increase in the contribution of employers to the National Insurance (Ni).
- LANE of the ECB declared that inflation in the Eurozone is very controlled.
The EUR/GBP pair is traded by 0.8525 during the European negotiation hours on Wednesday. The crossing is flattened as market experts reassess their expectations about the monetary perspective of the Bank of England (BOE) for the rest of the year in the midst of growing concerns about the United Kingdom labor market (UK).
On Tuesday, the governor of the BOE, Andrew Bailey, declared in his testimony before the Committee of Economic Affairs of the Lords that the Central Bank has begun to see “a weakening of the labor market, and it is likely that the salary agreements decrease,” Bailey said. He added that the increase in employers’ contribution to social security schemes seems to be “affecting the labor market.”
Theoretically, the growing concerns about the growth of employment pave the way for more cuts in interest rates on the part of the BOE. The labor market data for the three months that ended in April also showed that the ILO unemployment rate accelerated 4.6%, the highest level in the unemployment rate seen since July 2021.
Meanwhile, investors await the data reviewed in the Gross Domestic Product (GDP) of the first quarter, which will be published on Friday. The National Statistics Office (ONS) is expected to maintain its preliminary estimates that the economy expanded at a rate of 0.7%.
In the Eurozone region, investors expect the preliminary data of the harmonized consumer prices index (HICP) for June of the main regions of the block, which will provide clues on whether the European Central Bank (ECB) will continue to reduce interest rates.
On Tuesday, the head economist of the ECB, Philip Lane, expressed confidence that inflation is largely under control and that the Central Bank will seek “material” changes in inflation in its next monetary policy meeting, which is scheduled for July.
Meanwhile, ECB officials are expected to face economic risks downwards considering uncertainty about the tariff policy imposed by the president of the United States (USA), Donald Trump.
LIBRA ESTERLINA FAQS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself has achieved its main objective of “price stability”: a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
