- EUR/GBP is trading flat around 0.8440 in the early European session on Wednesday.
- The Euro weakens after Trump promised to impose tariffs on the EU.
- The UK unemployment rate rose in the three months to November, raising the possibility that the BoE will cut rates next month.
The EUR/GBP cross remains stable around 0.8440 on Wednesday during the early European trading hours. US President Donald Trump’s tariff threats could weaken the Euro (EUR) against the British Pound (GBP) in the short term. However, the increasing likelihood that the Bank of England (BoE) will cut rates next month could limit the cross’s decline. Investors will closely monitor European Central Bank (ECB) President Lagarde’s speech later on Wednesday.
On Tuesday, Trump vowed to impose tariffs on the European Union (EU) and said his administration was discussing 25% tariffs against Canada and Mexico, as well as tariffs on China. Valdis Dombrovskis, the European Union’s economic commissioner, said Wednesday that Europe will respond to any tariffs imposed by Trump on a proportional basis.
“If there is a need to defend our economic interests, we will respond proportionally,” Dombrovskis said. Concerns about an economic slowdown in the euro zone economy and uncertainty around Trump’s tariff threats could put some selling pressure on the shared currency.
On the other hand, financial markets see a higher likelihood of a rate cut at the BoE meeting after recent UK labor market data showed rising unemployment rates and wage growth. This, in turn, could weigh on the GBP and limit the cross’s decline. Markets have priced in almost a 91% chance of a reduction at the February 6 meeting. “We continue to think the Bank of England will cut interest rates at the next meeting in February, from 4.75% to 4.50%, and will continue to cut rates gradually after that,” Capital Economics analysts noted.
British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/ USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
