EUR/GBP wobbles around 0.8630 amid uncertainty over US-EU trade deal
- EUR/GBP trades sideways 0.8625 amid uncertainty surrounding trade discussions between the US and the EU.
- The EU aims to reach a trade framework with the US by August 1.
- BoE warns of diminishing investors’ appetite for UK’s riskier assets.
The EUR/GBP pair trades in a tight range around 0.8625 during the European trading session on Thursday. The cross consolidates as the Euro (EUR) struggles for directions, with investors staying on sidelines amid uncertainty surrounding the trade deal between the European Union (EU) and the United States (US).
27-nations led EU Commission President Ursula von der Leyen has stated that the continent is constantly in contact with Washington to secure a deal before the tariff deadline, which has been extended to August 1. However, she warned that the EU should be prepared for all scenarios.
"We stick to our principles, we defend our interests, we continue to work in good faith, and we get ready for all scenarios," von der Leyen told the European Parliament on Wednesday, Reuters reported.
Meanwhile, European Parliament’s trade committee head Bernd Lange has also stated that the EU is aiming to reach a framework agreement with the US by the deadline. Lange stated that negotiations with Washington emphasize securing lower tariffs and establishing a "stand-still clause" that would prevent further trade measures against the EU.
Although the United Kingdom (UK) economy is safe from trade tensions with the US as it has already secured a deal, escalating domestic economic risks are limiting the Pound Sterling’s (GBP) upside.
On Wednesday, the Bank of England (BoE) warns of major risks in its mid-year Financial Policy Committee (FPC) review, such as sharp falls in risky asset prices and abrupt shifts in asset allocation.
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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