EUR/GBP weakens below 0.8450 as traders await UK labor market data

EUR/GBP softens to around 0.8420 in Monday’s early European session.
ECB’s Lagarde said central bank is in a good position on interest rates.
The UK employment report will take center stage later on Tuesday.

Lallalit Srijandorn FXStreet

The EUR/GBP cross trades in negative territory for the second consecutive day near 0.8420 during the early European session on Monday. US President Donald Trump’s decision last week to double tariffs on steel and aluminium imports from the Eurozone from 25% to 50% continues to weigh on the Euro (EUR). Investors will closely watch the UK employment report, which will be released later on Tuesday.

The Trump administration's doubling of the tariff on steel and aluminium imports does not apply to the UK, which will continue to pay 25% until 9 July. Uncertainty related to potential US tariffs could disrupt growth in the Eurozone and drag the EUR lower against the Pound Sterling in the near term.

Markets continued to price in the European Central Bank's (ECB) hawkish monetary policy outlook issued last week, which might lift the shared currency. The ECB announced last week that it lowered key rates by 25 basis points (bps) after the June policy meeting. ECB President Christine Lagarde said that they might be approaching the end of the easing cycle. Lagarde further stated over the weekend that the central bank rates are now in a "good position" despite the extremely high uncertainty being triggered by Trump's tariff threats.

Traders will keep an eye on the UK employment data on Tuesday. The Unemployment Rate is expected to tick higher to 4.6% in the three months to April from 4.5% in the previous reading. The number of people claiming jobless benefits is estimated to increase by 4.5K in May. In case of a stronger-than-expected outcome, this could boost the Pound Sterling and create a headwind for the cross.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling 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, its currency will benefit 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.

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