EUR/GBP holds positive ground above 0.8250 on Ukraine peace plan
- EUR/GBP trades on a stronger note near 0.8255 in Tuesday’s early European session.
- Ukraine peace plan and hotter-than-expected Eurozone HICP inflation data lift the Euro.
- The BoE is anticapted to follow a careful and gradual policy-easing approach.
The EUR/GBP cross trades in positive territory for the second consecutive days around 0.8255 during the early European session on Tuesday. The Euro (EUR) strengthens against the Pound Sterling (GBP) after the report that France and the United Kingdom (UK) have proposed a one-month truce in Ukraine.
French President Emmanuel Macron and his foreign minister said that France is proposing a partial one-month truce between Russia and Ukraine, suggesting European efforts to bolster support for Kyiv accelerate in the face of uncertain US backing.
Additionally, the hotter-than-expected February flash Harmonized Index of Consumer Prices (HICP) data from the Eurozone provides some support to the shared currency. The Eurozone HICP rose 2.4% YoY in February, compared to 2.5% in January. This figure came in above the consensus of 2.3%.
On the GBP’s front, the rising bets that the Bank of England (BoE) will follow a moderate policy-easing cycle might boost the GBP and create a headwind for EUR/GBP. BoE Deputy Governor Dave Ramsden said that the UK central bank should keep a “careful and gradual” approach to the monetary policy amid uncertainty over the labor market and global trade.
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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