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EURGBP: Still below 0.87 after data release


The UK’s three-month ILO unemployment rate was revised up slightly by 0.1 percentage points to 3.9% in March (reaching last January’s level), the highest level since December 2021. In April, the country’s unemployment rate edged up to 4% from 3.9%, while jobless claims rose by 46,700, the biggest increase since February 2021, after its previous value was revised down by 1,700 to 26,500. On the other hand, average wages excluding bonuses for the three months of March recorded 6.7% year-on-year last year, slightly higher than the previous 6.6% but less than market expectations of 6.8%. Adjusted for inflation, regular wages contracted by 2%, the smallest compression since March last year.

Chart 1: UK unemployment rate and unemployment claims vs average wages excluding bonuses. Source: Trading Economics
Chart 1: UK unemployment rate and unemployment claims vs average wages excluding bonuses. Source: Trading Economics

Later in the evening, economic data from Europe included first quarter GDP, which posted a revised annual rate of 1.3% year-on-year and 0.1% quarter-on-quarter, both of which were in line with market expectations and previous values. Also released were the Eurozone and German ZEW economic sentiment indices for May – both fell sharply to -9.4 (from 6.4 previously) and -10.7 (from 4.1 previously). After four consecutive months of positive readings, both figures fell back into negative territory, reflecting a renewed turn to pessimism in market sentiment.

This is because the still very high level of inflation in the Eurozone will prompt the ECB to further tighten monetary policy, a move that will pose a continued risk to economic growth.

Figure 2: European GDP and ZEW Economic Sentiment. Source: Trading Economics
Figure 2: European GDP and ZEW Economic Sentiment. Source: Trading Economics

In the labour market, quarterly employment in the first quarter recorded 1.7% year-on-year last year, slightly above the previous 1.5%, while quarter-on-quarter, the figure registered 0.6% (or 166.1 million), better than market expectations and the previous 0.3% – and the highest employment growth rate since the third quarter of 2021. The data performance shows that the labour market remains tight and still does not seem to have been significantly affected by the ECB’s tightening monetary policy. Indeed, with the ECB and President Lagarde signalling that current interest rates are not yet sufficiently restrictive, markets are essentially pricing in the central bank still raising rates by 25 basis points at the June policy meeting. The decision on whether to raise rates by another 25 basis points in July would then be based on developments in the bank’s outlook.

Figure 3: Eurozone employment change. Source: Trading Economics
Figure 3: Eurozone employment change. Source: Trading Economics

Technical Analysis: 

EURGBP, 4-hour chart: The pair hit an intra-day high of 0.87176 following the release of the UK employment data. Then, following the European data, EURGBP currently remains under pressure at 0.8710 resistance (FR 23.6% of this month’s low extended from last month’s peak). The main trend is biased to the downside unless the currency pair strongly breaks above the FR 50.0% (0.8770) as well as the SMA-100 SMA. In other words, the recent low of 0.8660 will be a support to watch. A break below this level would drive the shorts to probe further at 0.8630 and then 0.8560 (the latter being the low level seen in the fourth quarter of last year).

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Larince Zhang

Market Analyst 

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