The pound took a bit of a battering on Tuesday as September’s unexpectedly poor employment report triggered a steep fall. Given its recent strength, GBP/EUR’s fall of three quarters of a cent meant it only retreated to where it ended last week. Yet against the US dollar, the pound ended yesterday’s session at its lowest level since the beginning of August.
The combination of rising unemployment and higher wage growth left many questioning what the Bank of England’s next move would be. It seems the snap conclusion was an increased likelihood of a December cut, although that narrative could change quickly based on the series of key data points sterling must first negotiate.
Average earnings drew particular attention. Excluding bonuses, UK workers recorded an average annual pay rise of 4.3% in the past three months, well above the expected 3.9%. Taken together with rising unemployment, that left markets questioning sterling’s trajectory with the BoE still to announce a last interest rate decision of 2024 next month.
EUR/USD fell by around a third of a per cent on the day. The German ZEW economic sentiment study provided more bad news, falling to 7.4 in November after bouncing back last month. Interestingly, much of the gloom was generated by news of Donald Trump’s win in the US presidential election. Economic perceptions of the USA increased, while those of the eurozone and China fell in the latest report.
Germany’s political leaders agreed to hold a snap election on 23 February after the collapse of the ruling coalition last week. One positive for chancellor Olaf Scholz is that his sacking of finance minister Christian Linder has led to an unexpected boost in his popularity. However, Scholz’s SPD party still languish behind the Christian Democrats and the far-right Alternative für Deutschland (AFD) in the latest polls.
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