EUR/GBP softens below 0.8650 as traders brace for US-Ukraine talks
- EUR/GBP edges lower to near 0.8630 in Monday’s early European session.
- UK economic growth slowed in Q2 to 0.3%, but it was better than economists had forecast.
- Investors will closely monitor the meeting between Trump and Zelenskiy later on Monday.
The EUR/GBP cross tumbles to around 0.8630 during the early European session on Monday. The Pound Sterling (GBP) weakens against the Euro (EUR) amid the upbeat UK Gross Domestic Product (GDP) report for the second quarter (Q2). Investors await the UK July Consumer Price Index (CPI) inflation and the European Central Bank (ECB) President Christine Lagarde’s speech later on Wednesday.
The UK economy grew at a faster pace than estimated in Q2 despite the shock of US trade tariffs and a weaker jobs market. The Office for National Statistics (ONS) showed on Thursday that UK GDP slowed to 0.3% in the three months to June, down from a rate of 0.7% in Q1. This reading came in stronger than the expectation of a 0.1% expansion in the reported period. The stronger-than-expected UK GDP report could complicate the Bank of England’s (BoE) path to cutting interest rates further, which lifts the GBP against the EUR.
On the Euro front, investors will focus on a meeting between US President Donald Trump and Ukrainian leader Volodymyr Zelenskiy later on Monday as the US presses Ukraine to accept a quick peace deal to end Europe's deadliest war in 80 years.
Russian leader Vladimir Putin agreed that the US and its European allies could offer Ukraine a security guarantee resembling NATO’s collective defense mandate as part of an eventual deal to end the war. Peace hopes imply lower energy costs and reduced geopolitical uncertainty in the Eurozone, which generally provides some support to the shared currency.
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
Lallalit Srijandorn
FXStreet
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.
