- The EUR/GBP operates in a positive note around 0.8675 in the early hours of the European session on Tuesday, rising 0.14% in the day.
- The ECB is expected to keep the rates at the July meeting on Thursday.
- Increase the bets for rates cuts in the United Kingdom in the middle of a cooling of the labor market and tax risks in the United Kingdom.
The EUR/GBP crossing advances towards 0.8675 during the first hours of the European session on Tuesday. The euro (EUR) is strengthened in front of the sterling pound (GBP) since the European Central Bank (ECB) is expected to maintain the stable interest rate at its July meeting on Thursday.
After eight cuts of a quarter quarter that carried the 2%deposit rate, the president of the ECB, Christine Lagarde, said last month that the relaxation cycle is coming to an end. Those responsible for the ECB’s policy believe that they are well positioned to face what is coming. “The Central Bank will now want to have more clarity about commercial perspectives before considering adjusting its policy,” said analysts from the Italian Bank Unicredit.
Commercial tensions between the US and the EU intensified after the Wall Street Journal (WSJ) reported that the US president, Donald Trump, has demanded a higher base tariff in a range between 15% and 20% compared to 10%, which was previously negotiated. Meanwhile, the block declared that retaliation measures are being prepared against the US. If punitive commercial tariffs are imposed. Tariffs and geopolitical uncertainty could weigh on the currency shared in the short term.
The persistent political and fiscal risks in the United Kingdom, along with a cooling of the labor market, could drag the GBP down and create a tail wind for the crossing. Monetary markets have discounted almost 89% probability that the BOE reduces indebtedness costs in August, compared to 87% possibility before the weakest employment data in the United Kingdom last week. The analysts expected the Central Bank of the United Kingdom to carry out two trimming of interest rates for the end of the year, which would take the banking rate to 3.75%.
EURO – FREQUENT QUESTIONS
The euro is the currency of the 19 countries of the European Union that belong to the Eurozone. It is the second most negotiated currency in the world, behind the US dollar. In 2022, it represented 31 % of all foreign exchange transactions, with an average daily business volume of more than 2.2 billion dollars a day. The EUR/USD is the most negotiated currency pair in the world, with an estimate of 30 %of all transactions, followed by the EUR/JPY (4 %), the EUR/GBP (3 %) and the EUR/AU (2 %).
The European Central Bank (ECB), based in Frankfurt (Germany), is the Eurozone reserve bank. The ECB establishes interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the rise or decrease in interest rates. Relatively high interest rates (or the expectation of higher types) usually benefit the euro and vice versa. The GOVERNMENT BOOK of the ECB makes decisions about monetary policy in meetings that are held eight times a year. The decisions are made by the directors of the National Banks of the Eurozone and six permanent members, including the president of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the harmonized consumer prices index (IPCA), are an important economic indicator for the euro. If inflation increases more than expected, especially if it exceeds 2% of the ECB, it forces the ECB to rise interest rates to control it again. Relatively high interest rates compared to their counterparts usually benefit the euro, since they make the region more attractive as a place for global investors to deposit their money.
Published data measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer trust surveys can influence the direction of the single currency. A strong economy is good for the euro. Not only attracts more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro is likely to fall. The economic data of the four largest economies in the euro zone (Germany, France, Italy and Spain) are especially significant, since they represent 75% of the economy of the euro area.
Another important fact that is published on the euro 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 gain value simply by 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.
