EUR/GBP tumbles to near 0.8300 as traders brace for ECB’s Lagarde speech
EUR/GBP loses traction to around 0.8315 in Monday’s early European session.
The BoE said it would be careful about further moves in the face of an expected inflation spike and global economic uncertainty.
The BoE pledges a gradual approach after the quarter-point rate cut
The EUR/GBP cross trades in negative territory near 0.8315 during the early European session on Monday. The concerns about the threat of possible US tariffs on the Eurozone undermine the Euro (EUR). Later on Wednesday, investors await the European Central Bank’s (ECB) President Christine Lagarde speech for fresh impetus.
US President Donald Trump said on Friday that there would be an announcement later in the week about reciprocal tariffs on all countries that tax imports from the US, but he did not specify which countries would be targeted or if there would be any exemptions. Late Sunday, German Chancellor Olaf Scholz stated that the European Union (EU) can act "in an hour" if Trump slaps threatened tariffs on the bloc. Any signs of an escalating trade war between the US and the Eurozone could drag the shared currency lower.
Additionally, the rising expectation that the ECB will further cut the interest rates contributes to the EUR’s downside. The ECB policymaker, Boris Vujcic, said that anticipation for three more rate reductions this year are reasonable, even though it will take until the start of the second quarter to know with more certainty if they’ll materialize.
The Bank of England (BoE) Governor Andrew Bailey guided a cautious and gradual rate-cut approach, and he warned that inflation could temporarily rise to near 3.7% in the third quarter of the year before falling back to the 2% path due to higher energy prices.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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