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EUR/GBP holds below 0.8400 ahead of German employment data

  • EUR/GBP trades with mild gains around 0.8390 in Wednesday’s early European session.
  • ECB’s Holzmann calls for rate cut pause until September amid trade tensions. 
  • Traders are decreasing their BoE dovish bets after the stronger-than-expected UK April inflation data. 

The EUR/GBP cross trades with mild gains around 0.8390 during the early European session on Wednesday. The Euro (EUR) strengthens against the Pound Sterling (GBP) amid the de-escalation of trade tensions between the European Union (EU) and the United States (US). Later on Wednesday, traders will focus on the German Unemployment Rate. 

US President Donald Trump halted his 50% threatened tariffs until July 9 on US imports of European goods following a weekend call with European Commission President Ursula von der Leyen. The rising hopes of a potential EU-US trade deal could lift the shared currency in the near term. 

Additionally, the European Central Bank (ECB) policymaker, one of its most hawkish officials, Robert Holzmann said that the ECB should pause further interest rate cuts until at least September amid the simmering EU-US trade war. Holzmann added that he saw “no reason” for the central bank to lower rates at its June and July meetings. Holzmann’s hawkish comments provide some support to the Euro against the Pound Sterling.

On the other hand, traders become increasingly confident that the Bank of England (BoE) will delay its easing cycle after the release of the stronger-than-expected growth in the UK inflation data for April. This, in turn, could boost the GBP and act as a headwind for the cross. The odds of a BoE rate cut in August were reduced to 40% by investors, down from 60% before the inflation data. However, interest rate futures pricing suggested investors saw about 37 basis points (bps) of BoE rate reductions by the end of 2025.

(This story was corrected on May 28 at 08:06 GMT to specify, in the third bullet, that markets are decreasing their dovish bets over the Bank of England.)

Euro FAQs

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

Another significant data release for the Euro 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 then its currency will gain in value 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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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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