EUR/GBP seems vulnerable near 0.8300, one-month low ahead of BoE on Thursday
- EUR/GBP remains on the back foot for the third successive day on Tuesday.
- Concerns about Trump’s trade tariffs and dovish ECB weigh on the Euro.
- The downside remains cushioned ahead of the BoE meeting on Thursday.
The EUR/GBP cross turns lower for the third successive day following an Asian session uptick and currently trades around the 0.8300 mark, just above a near one-month low touched the previous day. Moreover, the fundamental backdrop seems tilted in favor of bearish traders and supports prospects for further losses.
The shared currency continues with its relative underperformance in the wake of concerns that US President Donald Trump would slap tariffs on goods from the European Union. This comes on top of the European Central Bank's (ECB) dovish stance, which, to a larger extent, overshadows a rise in the Eurozone Harmonized Index of Consumer Prices (HICP) at an annual rate of 2.5% in January.
In fact, the ECB lowered borrowing costs by 25 basis points (bps) last Thursday, as expected, and left the door open for more rate cuts by the end of this year. This is seen weighing on the Euro and validates the near-term negative outlook for the EUR/GBP cross. Traders, however, might refrain from placing aggressive bets and opt to wait for the Bank of England (BoE) meeting on Thursday.
Nevertheless, the aforementioned factors support prospects for an extension of a nearly two-week-old downtrend, suggesting that any attempted recovery might still be seen as a selling opportunity and remain capped. That said, traders might still opt to move to the sidelines in the absence of any relevant macroeconomic data on Tuesday and heading into the key central bank event risk.
Tariffs FAQs
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.
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.
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.
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.
Economic Indicator
BoE Interest Rate Decision
The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.
Read more.Next release: Thu Feb 06, 2025 12:00
Frequency: Irregular
Consensus: 4.5%
Previous: 4.75%
Source: Bank of England
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
