EUR/GBP hovers near 1.0850 as reciprocal tariff threats from US weigh on market sentiment

EUR/GBP could lose ground as the Trump administration is advancing a plan for reciprocal tariffs.
The Eurozone faces the risk of reciprocal tariffs since it imposes a 10% duty on US automobile imports.
The British Pound may struggle following dovish remarks from BoE’s Catherine Mann.

Akhtar Faruqui FXStreet

EUR/GBP remains steady after losses in the previous session, hovering around 0.8330 during early European trading hours on Wednesday. Market participants are exercising caution ahead of the release of the US Consumer Price Index (CPI) inflation data later in the day.

The EUR/GBP cross moves little as risk aversion is rising amid escalating geopolitical tensions in the Middle East. Israeli Prime Minister Benjamin Netanyahu warned late Tuesday that the ceasefire would end, and Israel would resume "intense fighting" in Gaza if Hamas does not release hostages by Saturday noon, according to the BBC. Earlier, US President Donald Trump urged Israel to break the ceasefire if hostages were not returned by the weekend.

The Euro may face downside risks as the Eurozone is particularly exposed to potential reciprocal tariffs. Currently, it imposes a 10% tariff on US automobile imports while its own car exports to the United States (US) are subject to only a 2.5% tariff.

Trump administration is advancing an executive action plan to implement reciprocal tariffs, bypassing Congress. The initiative aims to match or exceed tariffs imposed on US exports by other countries and may also address non-tariff barriers such as foreign subsidies, taxes, and regulations. According to the Wall Street Journal, this move could lead to higher US tariffs on goods from Japan, the EU, and China.

EUR/GBP cross could weaken further as the Pound Sterling (GBP) faces headwinds following dovish remarks from Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann. In a Tuesday interview with the Financial Times (FT), Mann indicated a shift in her policy stance, citing significantly weaker demand conditions. She expressed confidence that inflation would align with the BoE’s 2% target later this year while highlighting a “non-linear” decline in employment.

Tariffs FAQs

What are tariffs?

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

What is the difference between taxes and tariffs?

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

Are tariffs good or bad?

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

What is US President Donald Trump’s tariff plan?

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

AUD/USD eyes 0.7150 barrier nine-day EMA

AUD/USD inches higher after registering modest losses in the previous day, trading around 0.7130 during the Asian hours. The technical analysis of the daily chart indicates that the pair is moving sideways within the rectangle pattern, suggesting a consolidation as neither the bulls nor the bears have enough momentum to take control of the market.

USD/JPY trades below 160.00 intervention threshold; bullish bias intact

The USD/JPY pair attracts some sellers during the Asian session amid fears that authorities will step in again to prop up the Japanese Yen. Furthermore, the Israel-Lebanon truce prompts some profit-taking around the US Dollar and exerts downward pressure on the currency pair.

Gold puts its 200-day SMA to the test near $4,420

Gold keeps the bullish stance in place in the latter part of Thursday’s session, although a convincing break above the key $4,500 mark per troy ounce still remains elusive. The precious metal’s advance comes amid the resurgence of some selling interest around the Greenback, improving risk sentiment, and declining US Treasury yields across the board.

Bitcoin’s massive storm is back: Why the sell-off is far from over

Bitcoin price action over the last few weeks has felt less like a normal, healthy correction and more like a slow grinding crash that continues to wreak havoc on holdings and trading accounts. And everything suggests that the dramatic crash isn’t over.

Nonfarm payrolls: Testing the limits of Fed policy patience

The upcoming nonfarm payrolls report for May will provide the final update on the US labor market before Kevin Warsh attends his first policy meeting as the new Fed Chair later this month.

Recession on paper: What really moves the Canadian Loonie now?

Statistics Canada handed the headline writers a gift and the analysts a headache. Real GDP shrank 0.1% on an annualized basis in the first quarter, and with the fourth quarter of 2025 revised down to a 1.0% contraction, that is two negative quarters in a row, the textbook definition of a technical recession and Canada's first since the pandemic.