EUR/GBP flat lines below 0.8400 ahead of Eurozone Consumer Confidence release
- EUR/GBP trades flat around 0.8390 in Tuesday’s early European session.
- Optimism surrounding the EU-US trade deal could support the Euro in the near term.
- Stronger-than-expected UK CPI and Retail Sales have raised the prospect of a BoE rate cut delay.
The EUR/GBP cross holds steady near 0.8390 during the early European session on Tuesday. Traders will take more cues from Consumer Confidence in the Eurozone. The attention will shift to the German Retail Sales data, which is due later on Friday.
The rising hopes of a potential EU-US trade deal after US President Donald Trump delayed the imposition of 50% tariffs on Europe could lift the Euro (EUR) against the Pound Sterling (GBP) in the near term. Traders will closely monitor the progress of US trade policy as July 9 is the end of the 90-day pause on Trump's April 2 "Liberation Day" levies on the EU. Any signs of escalating trade tension could weigh on the shared currency.
On the GBP’s front, traders push back Bank of England (BoE) rate cut bets after the release of the stronger-than-expected growth in the UK Consumer Price Index (CPI) and Retail Sales data for April. This, in turn, might boost the Pound Sterling and create a headwind for the cross. The possibility of a BoE rate cut in August was reduced to 40% by investors, down from 60% before the inflation data. However, interest rate futures pricing suggested investors saw about 37 basis points (bps) of BoE rate reductions by the end of 2025.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) 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, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling 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, its currency will benefit 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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