EUR/GBP remains under selling pressure above 0.8500 following UK labor market data

• EUR/GBP attracts some sellers to 0.8524 following the upbeat UK labor market data on Tuesday.
• The UK ILO Unemployment Rate dropped to 3.8% in three months to December from 4.2% in the previous reading, better than estimated.
• Traders place bets on interest rate cuts from the ECB, expecting 118 basis points (bps) of cuts in 2024.
• The Eurozone and German ZEW Survey will be due later on Tuesday.

The EUR/GBP cross faces some selling pressure during the early European trading hours on Tuesday. The downtick of the cross is supported by the stronger-than-expected UK labor market data, which lifts the British Pound (GBP). At press time, EUR/GBP is trading at 0.8524, down 0.08% on the day. 

The latest data from the UK Office for National Statistics on Tuesday showed that the ILO Unemployment Rate dropped to 3.8% in three months to December from 4.2% in the previous reading, above the market consensus of 4.0%. Meanwhile, the number of people claiming jobless benefits rose by 14.1K in January from a gain of 5.5K in December. The UK Employment Change came in at 72K in December, versus a 73K increase in November.

In a busy week for UK economic data, the January Consumer Price Index (CPI) estimation indicates an increase in both headline and core rates. Furthermore, projections indicate that the release of the UK Q4 GDP growth numbers later this week may confirm a technical recession for the UK economy in the latter half of last year. 

The Bank of England (BoE) governor Andrew Bailey downplayed the upcoming data that some experts forecast will prove the UK was in a technical recession at the end of last year. Bailey said the new BoE’s latest forecasts suggested a “somewhat stronger growth story” ahead. If the report shows a weaker-than-expected outcome, this could exert some selling pressure on the Pound Sterling (GBP) and act as a tailwind for the EUR/GBP cross.

On the Euro front, the European Central Bank (ECB) Governing Council member Fabio Panetta stated on Saturday that the time for a reversal of the monetary policy stance is fast approaching as disinflation is well underway. He added that inflation has declined rapidly, and cutting rates late but aggressively could cause market volatility. Traders anticipate 118 basis points (bps) of cuts in 2024 from the ECB, down from the 145 bps expected at the start of February.

Market participants will focus on the UK CPI inflation and Producer Price Index (PPI), due on Wednesday. The preliminary UK GDP growth number for the fourth quarter will be released on Thursday, and the Retail Sales report will be published on Friday. On the Euro docket, the Eurozone and German ZEW Survey will be due on Tuesday. The Eurozone GDP numbers for Q4 will be due on Wednesday. Traders will take cues from these reports and find trading opportunities around the EUR/GBP cross.