EUR/GBP weakens to near 0.8500 ahead of Eurozone Consumer Confidence
- EUR/GBP softens to around 0.8515 in Friday’s early European session.
- France’s Macron said If the US 10% tariff stays, Europe will respond by imposing an equivalent on US firms.
- Stronger UK economic data underpins the Pound Sterling, but the BoE’s dovish tone might cap the GBP’s upside.
The EUR/GBP cross loses traction to near 0.8515 during the early European session on Friday. The Pound Sterling (GBP) strengthens against the Euro (EUR) despite growing concerns over the UK labor market and a slight slowdown in consumer inflation expectations. Traders brace for the Eurozone Consumer Confidence report, which is due later on Friday.
The European Commission President, Ursula von der Leyen, said on Thursday that the EU is ready for a trade deal with US President Donald Trump. However, tariff talks could fail and say, "All options remain on the table."
French President Emmanuel Macron said late Thursday that he favors a speedy and equitable EU-US trade agreement. Nonetheless, if the US 10% tariff stays, Europe will retaliate by imposing an equivalent levy on US companies. Tariff uncertainty triggered by Trump could weigh on the shared currency in the near term.
The UK June flash S&P Global Purchasing Managers’ Index (PMI) data reported earlier this week also supported the GBP. The S&P Global UK Composite PMI rose to 50.7 in June from 50.3 in May, above the consensus of 50.5. Meanwhile, the services sector, which dominates the UK economy, registered its fastest growth in three months and outperformed its German and French counterparts in June. This, in turn, lifts the GBP and acts as a headwind for the cross.
However, the dovish tone from the Bank of England (BoE) could limit the GBP’s upside. BoE Governor Andrew Bailey warned earlier this week that there were now signs that the UK labor market was softening, and he emphasized his view that interest rates are likely to continue falling.
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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