The EUR/GBP currency pair posted mild gains early Wednesday, trading near 0.8390 during the European session. The Euro (EUR) drew strength from signs of de-escalation in transatlantic trade tensions and hawkish signals from a key European Central Bank (ECB) official. Meanwhile, market attention shifts to upcoming German unemployment data, which could influence further movement in the cross.
Trade Optimism Lifts the Euro
The Euro received a boost after former US President Donald Trump announced a delay in imposing 50% tariffs on imports of European goods, pushing the deadline to July 9. The decision followed a call with European Commission President Ursula von der Leyen over the weekend, raising hopes of a potential trade agreement between the European Union (EU) and the United States. The prospect of reduced trade friction is seen as supportive for the shared currency in the near term.
ECB’s Holzmann Pushes Back on Rate Cuts
Adding to the Euro’s appeal, ECB Governing Council member Robert Holzmann, known for his hawkish stance, stated that the central bank should hold off on any further interest rate cuts until at least September. Citing uncertainty amid ongoing trade discussions, Holzmann emphasized there was “no reason” for the ECB to lower rates at its upcoming June or July meetings. His remarks helped bolster confidence in the Euro, providing a counterweight to pressure from dovish expectations elsewhere.
Pound Supported by Hot Inflation Data
On the other side of the cross, the British Pound (GBP) found support from stronger-than-expected UK inflation data for April. The figures reinforced investor expectations that the Bank of England (BoE) will delay the start of its monetary easing cycle. As a result, the probability of an August rate cut dropped to 40%, down from 60% prior to the data release.
However, despite the short-term repricing, interest rate futures suggest that markets are still pricing in around 37 basis points of BoE rate cuts by the end of 2025, indicating lingering expectations for medium-term monetary easing. This outlook may act as a limiting factor for further Pound strength and help keep the EUR/GBP cross supported.
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