Optimism high for GBP/EUR as US tariff negotiations remain decisive for Euro prospects

It’s been a volatile year for GDP/EUR as a cocktail of factors entered the fray, with many stemming from President Trump’s ambitious plans for tariffs on trade. Despite sterling struggling for momentum in Q2 2025, analysts appear optimistic for future growth. 

GBP/EUR has slipped around 3.4% in the first half of 2025, owing in part to the significant volatility that United States President Donald Trump’s bold reciprocal tariffs strategy has caused throughout global markets. 

As a result, traders have been forced to become more accustomed to adopting reactive approaches in anticipating news-driven price fluctuations. 

Given that GBP is negatively correlated with volatility, it’s been more prone to falling when equity markets come under pressure, which has been a key factor in its dwindling performance throughout the first half of the year. 

This has created a challenging environment for the pound, particularly in the face of Trump’s unconventional negotiation tactics when it comes to establishing trade deals with partner nations. 

With Trump’s 90-day pause on his Liberation Day reciprocal tariffs set to expire on July 8, it’s reasonable to expect further volatility ahead as the European Union seeks to follow the United Kingdom in brokering a trade deal with the US. 

Despite the uncertainty ahead, UBS has anticipated that the pound will strengthen against the euro to 1.1900 by the end of 2025 before experiencing a net retreat in 2026. 

This optimistic note has been tempered by Nordea’s more subdued forecasts of GBP/EUR at 1.1630 by the end of the year. 

Crucially, the outcome of whether the EU can agree a trade deal before the deadline with the Trump administration, or whether a fresh extension will be issued for talks, will be a deciding factor in the short-term prospects of the euro. 

Another factor will be the path that oil prices take and their impact in negating the effects of inflation throughout the United States, as well as global risk assets. 

BoE remains cautious

The Bank of England (BoE) Governor, Andrew Bailey, recently suggested that a gradual and careful approach to the withdrawal of monetary policy remains the appropriate solution in coping with uncertainty. 

In his speech on June 26, Bailey noted that the ever-present risks of inflation have prompted monetary policy to continue to remain restrictive until a sustainable return to 2% in the medium term is achieved. 

Bailey also reiterated that the BoE’s monetary policy isn’t on a preset path, with two-sided risks to inflation remaining a hazard that could keep interest rates higher for longer in the United Kingdom. 

These words of caution come as signs of a cooling UK labor market persist, adding a deeper level of uncertainty to the future of the pound. 

Maintaining a more measured approach to interest rate cuts is generally good news for forex traders because it maintains a higher level of investor interest in UK equities due to a more attractive rate of return. 

Having already agreed a trade deal with the United States, it’s more likely that currency volatility will come from the European Union, which is facing multiple economic challenges throughout the second half of 2025. 

European uncertainty

News that consumer confidence recently fell in the EU’s largest economy, Germany, is another sign that geopolitical factors and uncertainty are weighing heavily on the euro. 

However, EUR enjoys an inverse relationship with the dollar, and as a result, volatility emerging from the United States has generally improved the strength of the euro against a GBP that’s more averse to uncertainty. 

As a result, the euro remained resilient in the face of Germany’s falling consumer confidence due to speculation that President Trump may be set to nominate a new Federal Reserve Chair in response to Jerome Powell’s perceived unwillingness to cut interest rates. 

The prospect of a looser monetary policy in the US in the wake of a politically motivated change at the top of the Fed shook confidence in the dollar in a move that saw the euro recapture some strength. 

Trading on tariffs

The foreseeable future of GBP/EUR is likely to be heavily influenced by the outcome of the European Union’s crunch talks with the United States over a deal on tariffs. 

With Trump threatening 50% tariffs on all EU imports after the expiry of his delay to the Liberation Day tariffs announced in April, all eyes of forex traders will be firmly on the news emerging from the negotiations between both parties. 

As things stand, the higher tariffs will take effect on July 9, but the European Union is intent on finding a mutually beneficial agreement with the US in the meantime. Their bid to reduce the tariffs imposed on steel, aluminum, and various autoparts could help to drive confidence in the eurozone and generate more resilience against the pound. 

For traders, keeping up to date with the news on the EU’s tariff negotiations will be imperative in seeking out opportunities in GBP/EUR, and it’s imperative to look to low-latency execution speeds like the 0.05-second pace of Just2Trade - a leading, multi-award-winning European broker trusted by over 155,000 clients.

Likewise, social listening tools can go a long way in anticipating market movements during periods of volatility. 

Preparing for volatility

The mid-term future of GBP/EUR will depend heavily on the willingness of the United States to reach a positive trade agreement with the European Union. 

For traders, anticipating the volatility ahead can offer excellent opportunities within the wider forex landscape. 

With optimism relatively high for GBP to recover some of its lost ground in 2025, major movements can be anticipated by following the news both in Europe and the United States. 

2025 may be shaping up to be a highly volatile year, but this can help to uncover significant opportunities for prepared traders.