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EUR/GBP slips as NATO tensions and Trump tariffs weigh on Euro

  • NATO warns Russia after airspace incursion in Estonia, raising geopolitical risks that pressured the Euro.
  • ECB Consumer Expectations Survey shows inflation forecast of 2.8% for one year, while the five-year projection rises modestly.
  • Traders eye UK budget details and Eurozone inflation data, alongside Trump’s new tariffs targeting key European exports.

The Euro (EUR) reverses its course against the British Pound (GBP) amid a scarce economic docket in Europe and the UK on Friday, although geopolitics could be the reason that pushed the shared currency lower. EUR/GBP trades at 0.8729, down 0.14% at the time of writing.

Shared currency drops 0.14% as geopolitics overshadow light UK, Eurozone dockets

Tensions in Europe seem to weigh on the Euro as NATO warned Russia that it is prepared to intercept Russian aircraft. According to Bloomberg, European officials privately told Russia they are ready to shoot down jets and view Russia’s incursion into Estonia as deliberate.

Data-wise, the European Central Bank (ECB) released the Consumer Expectations Survey on Friday, which showed that households forecast inflation in one year at 2.8% and for the 5-year projection rose from 2.1% to 2.2%.

On the UK front, a scarce docket left traders adrift to the weak Flash PMI figures revealed on Tuesday. Traders are also eyeing further details of the upcoming UK budget on November 26.

Market participants should also be keen on the US President Donald Trump's fresh tariffs, which could impact Europe. He imposed 100% duties on pharmaceuticals, 50% on all kitchen cabinets, bathroom vanities and associated products, 40% on upholstered furniture and a 25% levy on heavy trucks.

Next week, the docket in Europe will feature Business Climate, Consumer Confidence, the Economic Sentiment Indicator, September inflation figures and a flurry of ECB speakers. Also, traders should be wary of Flash PMIs, German inflation and Retail Sales.

In the UK, Gross Domestic Product (GDP) figures would be eyed and speeches by members of the Bank of England.

EUR/GBP Price Forecast: Technical outlook

EUR/GBP sits near weekly highs, though forming a 'dark cloud cover' chart pattern, an indication that a retracement could be underway. The Relative Strength Index (RSI), despite being bullish, provided further confirmation as the index edges lower towards its neutral level.

That said, if EUR/GBP drops below 0.8700, the next support would be the 20-day SMA at 0.8686, ahead of the 50-day SMA at 0.8671. On the flip side, if buyers reclaim 0.8750, the next area of interest would be 0.8800.

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.

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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