EUR/GBP bounces after UK Unemployment data miss, but Euro remains vulnerable

EUR/GBP bounced from multi-year lows after weak UK labor market data led to a sell-off in the Pound. 

The pair remains pressured, however, by risks to the outlook for the Eurozone as the US gears up to implement tariffs. 

Political uncertainty in Germany and the Pound’s positive relationship to risk are further bearish factors for EUR/GBP. 

EUR/GBP bounces off two-and-a-half year lows in the 0.8200s to trade back up in the 0.8330s on Wednesday after UK labor market data showed a rise in the Unemployment Rate which increased speculation the Bank of England (BoE) might cut interest rates in December. 

Previously the UK central bank had been one of the few major central banks expected not to cut rates at the end of the year because of stubbornly high inflation. The expectation of interest rates remaining relatively elevated in the UK had been a supportive factor for the Pound Sterling (GBP), since they attract greater inflows of foreign capital. 

The UK Unemployment Rate rose to 4.3% in the three months to September from 4.0% in the previous period, according to data from the Office of National Statistics (ONS), released on Wednesday. The reading was also well above economists’ expectations of 4.1%. It indicated a weakening labor market and could put pressure on the BoE to cut interest rates in order to stimulate borrowing, growth and job creation.  

That said, other UK employment data was not as poor suggesting the Pound Sterling (GBP) could recover and EUR/GBP upside is likely to remain capped. UK Average Earnings Including Bonus’ increased 4.3% from a revised up 3.9% previously and 3.9% expected. UK Average Earnings Excluding Bonus’ rose by 4.8%, beating estimates of 4.7%, though below the 4.9% previously. The higher wages suggest inflationary pressures might increase, forcing the BoE to keep interest rates at their current elevated level, thereby strengthening Sterling, with bearish implications for EUR/GBP.