EUR/GBP recovers sharply to 0.8600 amid weak UK Employment and Eurozone ZEW data

• EUR/GBP climbs to 0.8600 as UK labor market data remained weak due to restrictive monetary policy by the BoE.
• BoE policymakers came under pressure as labor market witnessed layoffs while wage growth momentum remained intact.
• The ECB is expected keep rates on refinancing operations steady at 4.25% amid easing inflation and an economic slowdown.

The EUR/GBP pair jumped to near the round-level resistance of 0.8600 in the European session. The cross strengthened after the United Kingdom’s Office for National Statistics (ONS) reported vulnerable labor market data for July.

UK’s labor market shed 207K jobs in the quarter to July, more than an expected decline of 185K. In the former period, the labor market lost 66K payrolls. The Unemployment Rate for the three months ending in July rose to 4.3% as anticipated by market participants from the prior reading of 4.2%. In August, the Claimant Count Change increased by a mild 0.9K while investors anticipated individuals claiming jobless benefits to increase by 17.1K against July’s reading of 29K.

The economic data indicates that labor demand remained extremely soft in July. This seems to be the consequence of higher interest rates by the Bank of England (BoE) to contain persistent inflationary pressures. The labor market outlook is expected to remain vulnerable as the BoE is expected to raise interest rates further.

UK’s wage growth remained stubborn at 7.8%, in line with projections and the former release, which indicates that higher consumer spending momentum would make the inflation outlook extremely stubborn. Higher household income would keep the overall demand elevated and provide room for further price hikes by producers.

On the Eurozone front, investors remained mixed about the interest rate decision from the European Central Bank (ECB), which will be announced on Thursday. As per expectations, ECB President Christine Lagarde could keep rates on refinancing operations steady at 4.25% amid easing inflation and an economic slowdown.

Meanwhile, the Eurozone ZEW Economic Sentiment Index worsened to -8.9 from -5.5 recorded in August.  The sentiment indicator demonstrates the approach of institutional investors towards the economy.