February 4, 2025 - Written by David Woodsmith
STORY LINK Pound to Euro Outlook: GBP/EUR Jumps as Trump Threatens EU Tariffs
The Pound to Euro exchange rate (GBP/EUR) surged on Monday as market concerns intensified over Donald Trump’s latest trade tariff threats against the EU.
At the time of writing, GBP/EUR was trading around €1.2010, up approximately 0.4% from Monday’s opening levels.
The Euro (EUR) came under pressure on Monday after US President Donald Trump expanded his trade war rhetoric to include the European Union.
During a speech late on Sunday, just a day after imposing tariffs on Mexico, Canada, and China, Trump stated that tariffs on the EU were ‘definitely coming’.
While he did not specify a timeline, he hinted that the measures could be introduced ‘pretty soon’, unsettling EUR investors who fear the potential economic fallout of a transatlantic trade war.
These fears come at a particularly fragile time for the Eurozone, where growth remains sluggish and any disruption to exports could further weaken the region’s economic prospects.
However, Monday’s Eurozone inflation figures offered some support to the Euro, as the latest consumer price index (CPI) showed inflation accelerating.
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Preliminary data for January reported that headline inflation rose from 2.4% to 2.5%, while core inflation held steady at 2.7%, defying expectations it would cool.
The persistence of inflationary pressures lifted EUR sentiment as it could make the European Central Bank (ECB) more hesitant about further interest rate cuts in the near term.
The Pound (GBP) strengthened at the start of the week as the UK appeared to escape Trump’s immediate tariff threats.
Unlike his approach to other US allies, Trump suggested that trade discussions with the UK could be more amicable, commenting that he was optimistic about ‘working something out’ with Prime Minister Keir Starmer.
This sentiment, along with the fact that any tariffs imposed on the UK would only hit a tiny portion of GDP due to the country’s relatively small exports directed to the US, helped to support Sterling.
Looking ahead, the Pound Euro exchange rate may struggle to maintain its gains as attention turns to the Bank of England’s (BoE) upcoming interest rate decision on Thursday.
Markets widely expect the BoE to announce a 25bps rate cut following its first policy meeting of the year. While this could weigh on Sterling, the extent of its impact will depend on the bank’s forward guidance.
A more hawkish stance could limit losses or even give the Pound an additional boost.
Meanwhile, the Euro could face further volatility on Wednesday with the release of the latest Eurozone producer price index.
If December’s data reveals a decline in factory prices, it may reinforce concerns about slowing economic momentum and put additional pressure on the Euro.
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TAGS: Pound Euro Forecasts