EUR/GBP steadies above 0.8600 as Trump pushes Ukraine talks
- EUR/GBP holds steady near 0.8635 in Tuesday’s early European session.
- US moves to set a Putin-Zelenskiy meeting after talks with both.
- Traders trim bets on a final BoE rate cut this year, pricing in below a 50% chance of another reduction.
The EUR/GBP cross trades on a flat note around 0.8635 during the early European session on Tuesday. In the absence of top-tier economic data released from the Eurozone and the United Kingdom (UK) on Tuesday, traders will keep an eye on the developments surrounding a possible resolution of the Ukraine-Russia war after the US-Ukraine summit.
On Monday, Trump and Ukrainian President Volodymyr Zelenskiy met at the White House to discuss a path to ending Russia's war in Ukraine. US President said that the US would "help out" Europe in providing security for Ukraine as part of any deal to end the war and expressed hope that Monday's summit could eventually lead to a trilateral meeting with Russian President Vladimir Putin. Peace hopes imply lower energy costs and reduced geopolitical uncertainty in the Eurozone, which generally provides some support to the shared currency.
The European Central Bank’s (ECB) President Christine Lagarde's speech will be the highlight on Wednesday. The remarks from ECB policymakers might offer some hints about the interest rate path in the Eurozone. Forward contracts on the ECB's official overnight benchmark interest rate, the euro short-term rate (ESTR), imply around a 60% possibility of a 25 basis point rate cut (bps) by March, and a deposit rate of 1.92% in December 2026.
The attention will shift to the UK July Consumer Price Index (CPI) inflation data, which is due later on Wednesday. The headline and core CPI are expected to show an increase of 3.7% YoY in July. Any signs of hotter inflation could complicate the Bank of England’s (BoE) path to cutting interest rates further and might weigh on the GBP.
Money markets are betting the UK central bank will keep interest rates on hold at 4% for the rest of this year as signs of faster inflation and a more resilient economy reduce the case for more reductions. Traders decreased wagers on another quarter-point rate cut this year, with swaps implying less than a 50% odds of such a move.
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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