The EUR/GBP cross holds steady around 0.8440 during the early European trading hours on Wednesday, as investors weigh several key factors influencing the currency pair. While US President Donald Trump’s recent tariff threats could potentially undermine the Euro (EUR) against the Pound Sterling (GBP) in the near term, the rising likelihood of an interest rate cut by the Bank of England (BoE) could limit the downside for the pair.
Trump’s vow to impose 25% tariffs on the European Union (EU), alongside his plans for tariffs on China, Canada, and Mexico, has raised concerns among market participants. The European Union’s commissioner for the economy, Valdis Dombrovskis, responded by stating that Europe would defend its economic interests in a “proportionate way” if tariffs are imposed, adding uncertainty to the Eurozone’s economic outlook. This backdrop of tariff-related concerns and potential economic slowdown in the Eurozone may weigh on the EUR, especially if Trump’s tariff actions escalate tensions.
On the other hand, the Pound has been under pressure amid expectations that the BoE will cut interest rates in the near future. Recent UK labor market data, which showed a rise in the Unemployment Rate and continued wage growth, has fueled speculation that the BoE will lower rates at its next policy meeting on February 6. The markets are currently pricing in a nearly 91% probability of a 25 basis points (bps) rate cut, from 4.75% to 4.50%. Capital Economics analysts have indicated that they expect the BoE to continue cutting rates gradually after the February meeting.
In this context, the EUR/GBP cross may face some short-term pressure from tariff concerns, but the anticipated rate cut from the BoE could help limit further downside for the pair. Investors are also closely monitoring any developments in the speech by European Central Bank (ECB) President Christine Lagarde later on Wednesday, which could provide additional guidance on the euro’s trajectory.
As of now, the cross remains in a narrow range, with a potential catalyst for movement coming from economic and political developments in both the UK and Eurozone.
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