EUR/GBP weakens below 0.8550 after surprise fall in UK Unemployment Rate
- EUR/GBP loses momentum around 0.8540 in Tuesday’s European session, down 0.20% on the day.
- UK Unemployment Rate fell to 4.2% in three months to June; Claimant Count Change came in at 135K in July.
- Bloomberg economists expect the ECB to cut its deposit rate once a quarter through the end of next year.
The EUR/GBP cross loses traction near 0.8540 during the early European session on Tuesday. The cross edges lower after the recent mixed UK labor market data. The attention will shift to the German August ZEW survey, which is due later on Tuesday.
Data released by the Office for National Statistics (ONS) on Tuesday showed that the UK ILO Unemployment Rate dropped to 4.2% in the three months to June from 4.4% in the previous period. This figure came in better than the expectation of 4.5%. Meanwhile, the Claimant Count Change increased by 135K in July, compared with a revised gain of 32.3K in June, below the market consensus of 14.5K by a wide margin.
UK Wage inflation, as measured by Average Earnings excluding Bonus climbed 5.4% 3M YoY in June versus 5.7% in May, besting the estimation of a 4.6% rise. Average Earnings including Bonuses also rose by 4.5% in the same period, compared to 5.7% quarter through May. The Pound Sterling attracts some buyers in an immediate reaction to the UK employment report.
On the other hand, the expectation that the European Central Bank (ECB) would ease cycle sooner than previously anticipated weighs on the Euro (EUR). The ECB is likely to cut its deposit rate once a quarter through the end of next year, according to Bloomberg economists. A Bloomberg survey of forecasters indicated that the benchmark is projected to reach 2.25% in December 2025 after six straight quarter-point declines. Previously, respondents projected that this level would be achieved in the second quarter of 2026.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.