Three Major Euro Stress Points, Pound-to-Euro Rate Trapped

March 12, 2025 - Written by Tim Boyer

STORY LINK Three Major Euro Stress Points, Pound-to-Euro Rate Trapped

The Pound to Euro exchange rate (GBP/EUR) dipped further to 6-week lows near 1.1835 on Tuesday before settling around 1.1850.

From a Euro viewpoint, markets are having to navigate trade wars and a proposed Ukraine ceasefire as well as the crucial shift in German fiscal policy. Domestic influences are likely to be limited until Friday’s GDP data.

The US-EU trade war will tend to undermine the Euro while this could be offset to a limited extent by hopes for a Ukraine ceasefire deal.

Domestically, the huge planned German fiscal stimulus is likely to be make or break for the single currency given the impact on yields.

If Germany fails to back the fiscal stimulus, yields will decline rapidly and the Euro will be vulnerable to sharp losses.

As far as trade is concerned, the US has imposed 25% tariffs on all steel and aluminium imports, including those from the EU.

In response, the EU has retaliated immediately with tariffs on US exports worth EUR26bn.

MUFG commented; “the steel and aluminium tariffs are likely to be the first act on all US trading partners and the first actions taken beyond China that are likely to stay. So escalation is more real now and points to probable action by the US on 2nd April which looks like the date when we could get a real significant uplift in the escalation of the trade conflict.”

The UK was not spared on the steel tariffs, although the relative impact on the UK is likely to be smaller given the size of the steel sector while the UK will try to negotiate a wider trade deal.

On Tuesday, the US and Ukraine reached agreement on a 30-day ceasefire in the Ukraine war and the focus will turn to Russia.

Any ceasefire deal could help underpin the Euro amid hopes of lower energy prices.

MUFG expects a limited impact, especially with some form of deal priced in. It added; “The energy impact is however limited with modest moves in TTF while crude oil prices are modestly higher after the IEA reduced notably its previously estimate of excess supply of crude this year and next.”

Domestically, CDU leader Merz will continue his attempts to win backing for the proposed EUR500bn fiscal stimulus plans.

In particular, support from the Green Party will be crucial in finding a majority in the current parliament. At this stage, the Greens want to focus on defence and security first and will push for increased spending on climate change.

The CDU will need to secure agreement for constitutional change in the current parliament as the AfD will be able to block changes in the new parliament from late March.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts