- The EUR/GBP gains strength around 0.8690 in the early European session on Tuesday.
- Disappointing United Kingdom GDP data generates concerns about the increasing tax risks, weighing on sterling pound.
- The EU threatened retaliation tariffs on US products after the surprising tariffs of 30% of Trump.
The EUR/GBP crossing is in positive territory for the third consecutive day about 0.8690 during the European session on Tuesday. The sterling pound (GBP) weakens in front of the euro (EUR) since the Gross Domestic Product (GDP) of the United Kingdom contracted for the second consecutive month in May, generating concerns about the increasing tax risks. The operators prepare for the Zew survey in Germany and the Eurozone, which will be published later on Tuesday.
The economy of the United Kingdom contracted unexpectedly again in May, decreasing 0.1% month by month, according to the data on Friday. Economists expect growth to slow down in the rest of the year in the midst of a weaker labor market and continuous economic uncertainty, while the Bank of England (BOE) forecasts a mediocre growth rate of 1% in 2025. Monetary markets now value a possibility of almost 80% of a cut in August. These disappointing economic data from the United Kingdom and the increase in betting bets of BOE rates could weigh on the GBP and create a tail wind for the crossing in the short term.
In the front of the euro, the renewed commercial tensions between the US and the European Union (EU) could limit the EUR potential. The Wall Street Journal reported on Tuesday that the block is preparing for tariffs on American products, including airplanes, alcohol, coffee and medical devices for a value of 72,000 million euros (84,000 million dollars) in case a commercial agreement is not reached before August 1. This action occurred after Trump threatened to impose a 30% tariff on EU and Mexico imports from the beginning of August.
LIBRA ESTERLINA – FREQUENTLY QUESTIONS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself 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, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom 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 down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy 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.
