- The EUR/GBP weakens about 0.8375 in the first bars of the European session on Thursday.
- The weak German employment data increased the hopes of an ECB cut in June, which weighs on the euro.
- The BOE guided a gradual and cautious approach to the trimming of interest rates.
The EUR/GBP crossing under sale around 0.8375 during the first bars of the European session on Thursday. The euro (EUR) weakens in front of the sterling pound (GBP) due to the weak eurozone data. Later on Thursday, the Vice Governor of the Bank of England (BOE), Sarah Breeden, is scheduled to speak.
The data published by the German Statistics Office on Wednesday showed that the unemployment rate in Germany remained stable at 6.3% in April. Meanwhile, the change in unemployment increased by 34,000 in April compared to 4,000 previous. This figure exceeded the 11,000 market consensus. The negative data reinforces the case for greater relief from the European Central Bank (ECB) in June, which drags the shared currency down.
The Governing Council member of the ECB, François Villeroy of Galhau, said that more rates cuts could come, with few signs at this time of upward pressure on consumer prices. Rothschild analyst Wealth Management, Bastian Freitag, expects the ECB to reduce interest rates at 25 basic points (PB) next week, carrying the deposit rate to 2.00%.
On the other hand, the unexpectedly strong consumer price index (CPI) of the United Kingdom and retail sales have led investors to reduce the hopes of a BOE rates cut in August. This, in turn, could provide some support to the pound and act like a wind against the crossing.
The probability of a BOE rates cut in August was reduced to 40% by investors, compared to 60% before inflation data, according to Reuters. However, the fixation of futures prices of interest rates suggests that investors see about 37 basic points (PB) of BOE rates reductions by the end of 2025.
Euro Faqs
The euro is the currency of the 19 countries of the European Union that belong to the Eurozone. It is the second most negotiated currency in the world, behind the US dollar. In 2022, it represented 31 % of all foreign exchange transactions, with an average daily business volume of more than 2.2 billion dollars a day. The EUR/USD is the most negotiated currency pair in the world, with an estimate of 30 %of all transactions, followed by the EUR/JPY (4 %), the EUR/GBP (3 %) and the EUR/AU (2 %).
The European Central Bank (ECB), based in Frankfurt (Germany), is the Eurozone reserve bank. The ECB establishes interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the rise or decrease in interest rates. Relatively high interest rates (or the expectation of higher types) usually benefit the euro and vice versa. The GOVERNMENT BOOK of the ECB makes decisions about monetary policy in meetings that are held eight times a year. The decisions are made by the directors of the National Banks of the Eurozone and six permanent members, including the president of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the harmonized consumer prices index (IPCA), are an important economic indicator for the euro. If inflation increases more than expected, especially if it exceeds 2% of the ECB, it forces the ECB to rise interest rates to control it again. Relatively high interest rates compared to their counterparts usually benefit the euro, since they make the region more attractive as a place for global investors to deposit their money.
Published data measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer trust surveys can influence the direction of the single currency. A strong economy is good for the euro. Not only attracts more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro is likely to fall. The economic data of the four largest economies in the euro zone (Germany, France, Italy and Spain) are especially significant, since they represent 75% of the economy of the euro area.
Another important fact that is published on the euro 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 gain value simply by 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.
