EUR/GBP weakened by 25 pips to touch an intraday low near 0.8585 as European trading kicks off this Tuesday. The cross-currency pair appears to be reacting to promising UK earnings data, showing relatively less responsiveness to the disappointing changes in employment and unemployment rates as outlined in the most recent report from the UK National Statistics.
South African investors closely monitor the EUR/GBP pair, given that both the Euro and the British Pound are key currencies affecting trade and investment flows between South Africa, Europe, and the UK. The data from the UK, a significant trading partner to South Africa, is of particular relevance for South African businesses and investors, as a stronger Pound can potentially affect trade balances.
Discussing the newest UK jobs data, the headline Employment Change registered at -66K for June, contrasting sharply with a 50K forecast and a prior figure of 102K. Concurrently, the ILO Unemployment Rate escalated to 4.2% for the three months leading to June, defying market predictions of holding steady at 4.0%. Of significant note, however, is the surge in Average Earnings (both inclusive and exclusive of bonuses) for the three months to June. This uptick is fortifying hawkish anticipations surrounding the Bank of England (BoE), which appears to be exerting downward pressure on the EUR/GBP exchange rate.
On Monday, the UK’s Chartered Institute of Personnel and Development (CIPD) disclosed results of their most recent survey. As reported by Reuters, it indicated that HR executives are anticipating a median increase in basic pay rates of 5% – a figure that remains consistent with the last two quarters and represents one of the highest figures since the survey’s inception in 2012. This revelation strengthens the hawkish sentiment concerning the BoE, following last week’s encouraging UK growth statistics.
In contrast, Germany’s Wholesale Price Index (WPI) for July rose marginally to -2.8% YoY from the previous -2.9%, but this was softer than the anticipated -2.6%. The monthly WPI figures retained the -0.2% MoM numbers, defying the -1.4% market projections.
Subsequent to the release of this data, the German Economy Ministry remarked, as per Reuters, that present early indicators do not yet signify a lasting economic rebound in the months ahead. The report, nevertheless, also underscored the budding signs of hope, evidenced by a predicted cautious recovery in private consumption, services, and investment, set to gather momentum as 2023 unfolds.
For South African investors, a robust European economy often leads to stronger demand for South African exports, thereby supporting the Rand (ZAR).
It’s crucial to acknowledge that the Euro’s resilience in the face of the US Dollar’s withdrawal from a five-week peak, notably before the forthcoming sentiment figures from the ZEW Institute, is helping to stabilize the EUR/GBP rate. As we progress, the ZEW Economic Sentiment indicators for both Germany and the Eurozone will be vital for more definite trends.
In the technical landscape, a distinct reversal from the 100-DMA resistance, currently situated around 0.8665, aligns with an emerging bear cross on the MACD and a consistent RSI (14) line to sustain the optimism of EUR/GBP pair sellers, despite recent fluctuations.
For South African traders and investors, keeping an eye on the EUR/GBP pair and understanding the economic indicators from these significant economies can provide insights into global trade conditions, which indirectly influence the Rand and, subsequently, local investments.