The euro fell against the pound yesterday despite reports of an unexpected decline in German unemployment in December. Notably, the UK’s final manufacturing PMI data for December was slightly better than preliminary estimates. The decline in German inflation in December has given rise to expectations of a slower rate hike by the European Central Bank. This paved the way for the Eurodollar sell-off. Overall, the EUR/GBP pair declined from a high of 0.8860 to a low of 0.8805 in the past 24 hours.
According to the data published by the Spanish Ministry of Employment, the country’s unemployment rate fell by 43,727 in December, following a decline of 33,500 in the prior month. Economists had anticipated that unemployment would decline by 40,300.
The registered unemployment rate was 2,837,653 in December 2022, down 8.64% (or 268,252) on a y-o-y basis. Since February 2021, unemployment has fallen by 1,171,136. Services sectors posted a decrease of 1.81% (or 37,080) in December. Likewise, the agriculture sector recorded a fall of 4.16% (or 4,922) in the same period.
The aggregate number of young jobless people was 195,751, reflecting the lowest level since the Ministry started gathering data.
Spain had 1,799,838 unemployment beneficiaries in November 2022, a decrease of 1.20% from November 2021.
According to the German Federal Employment Agency, the country’s unemployment fell by 13,000 in December to 2.52 million, following an increase of 15,000 in November. Economists had anticipated the unemployment rate to increase by 15,000. The reported figure reflects the first decline in unemployment after six months of increases in a row.
According to the data published by S&P Global Market Intelligence, the UK’s final manufacturing PMI (purchasing managers’ index) declined to a 31-month low of 45.30 in December, from 46.50 in November, but beat the flash estimate of 44.70. Economists’ did not anticipate any change in the flash estimate. A reading below 50 indicates contraction, and vice versa.
Notably, the reading has remained below 50 for five consecutive months. Barring the readings recorded during the initial pandemic lockdown, the reported PMI reading is the lowest since mid-2009.
Four of the five components of the PMI reading, namely output, new orders, stocks of purchases, and employment, declined at an accelerated rate. The vendor delivery times rose to their lowest level since January 2020.
Manufacturing production fell for the sixth successive month in December. Furthermore, the pace of decline was the steepest in 14 years. Also, fresh domestic and overseas orders fell sharply, reflecting economic uncertainty, the postponement of orders by clients, and the reduction of inventories by customers. Concerning exports, manufacturers recorded lower demand from markets including China, mainland Europe, the US, and Ireland.
The decline in manufacturing is also reflected in the labor market. Employment fell for the third successive month, with the rate of fall being the steepest since October 2020.
The unexpected decline in German unemployment and better than anticipated UK final manufacturing PMI is expected to keep the EUR/GBP pair range bound in the short term.
The historical price chart indicates that the EUR/GBP pair is declining after failing to break 0.8860 levels. The next support is anticipated only near 0.8740. Additionally, the currency pair is trading below its 50-day moving average while the MACD indicator is showing a negative reading. Therefore, we anticipate the EUR/GBP pair to remain in a downtrend in the days ahead.
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