EUR/GBP holds gains above 0.8400 despite worse-than-expected German PPI data
- EUR/GBP stays supported as the Euro benefits from improved risk appetite, boosted by easing geopolitical tensions.
- German PPI fell more sharply than expected, highlighting ongoing deflationary pressures in April.
- In the UK, Wednesday’s core CPI for April is expected to rise 3.6% year-over-year, slightly above the previous 3.4% reading.
EUR/GBP extends its upward momentum for a second consecutive session, trading around 0.8420 during European hours on Tuesday. The currency cross remains supported as the Euro (EUR) benefits from improved risk sentiment, driven by easing geopolitical tensions and anticipation of developments on the Russia-Ukraine trade front.
US President Donald Trump held a call with Russian President Vladimir Putin on Monday, announcing that Ukraine and Russia have agreed to commence immediate negotiations for a ceasefire. Notably, the talks may proceed without direct US involvement, signaling a possible shift toward de-escalation in the conflict.
Despite these supportive developments, the Euro's upside could be limited as traders increasingly expect further monetary easing from the European Central Bank (ECB). Concerns over sluggish Eurozone growth and inflation have led markets to price in a nearly 90% probability of an ECB rate cut at the June 5 meeting, with just one additional cut anticipated for the remainder of the year, according to Reuters.
On the data front, Germany's Producer Price Index fell more sharply than expected, highlighting ongoing deflationary pressures. In April 2025, the PPI dropped 0.9% year-over-year, following a 0.2% decline in March and underperforming the forecasted 0.6% decrease. Month-over-month, the PPI fell 0.6%—its fifth consecutive monthly decline—compared to a 0.7% drop in March and worse than the anticipated 0.3% contraction.
Looking ahead, market attention is shifting to the UK’s April Consumer Price Index (CPI) report, set for release on Wednesday. The core CPI, which excludes food, energy, alcohol, and tobacco, is expected to rise by 3.6% year-over-year, slightly above the previous reading of 3.4%, potentially offering clues about the Bank of England’s (BoE) next policy move.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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