EUR/GBP extended its gains for a fourth consecutive day, trading near 0.8410 during Monday’s European session. The pair’s strength is largely attributed to the underperformance of the Pound Sterling (GBP), which remains under pressure due to fears of stagflation in the United Kingdom (UK), driven by persistent inflation and stagnant economic growth.
UK government bond yields have surged recently, heightening concerns about the nation’s fiscal health. The 30-year UK gilt yield has reached 5.36%, marking its highest level since 1998, which has intensified the challenges facing Chancellor of the Exchequer Rachel Reeves. This rise in yields is further dampening sentiment surrounding the GBP.
As investors unload UK gilts due to fears of growing debt, slow economic expansion, and inflationary pressures, the GBP’s weakness continues to bolster the EUR/GBP cross.
Meanwhile, in the Eurozone, expectations for further policy easing by the European Central Bank (ECB) are capping the Euro’s strength, limiting the upside potential of the EUR/GBP pair. Traders are also wary of global trade tensions, particularly concerns over protectionist measures under the incoming US administration, which may negatively impact risk-sensitive assets like the Euro.
At the 2025 Asian Financial Forum (AFF) on Monday, ECB Chief Economist Philip Lane stated that additional interest rate cuts are likely as the central bank aims to mitigate the risk of an economic slowdown. Lane emphasized the need for a balanced approach to policy this year, advocating for neither overly aggressive nor overly cautious measures.
In the same forum, ECB policymaker Olli Rehn warned Europe to be prepared for the potential fallout from a global trade war, urging that the European Union (EU) should not shoulder the burden of tariffs. Rehn also expressed support for continuing rate cuts, deeming them a prudent strategy.
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