Euro Resilient as Region Braces for Tectonic Shifts, GBP/EUR Held Below 1.20

April 2, 2025 - Written by Tim Boyer

STORY LINK Euro Resilient as Region Braces for Tectonic Shifts, GBP/EUR Held Below 1.20

The GBP to Euro exchange rate has stabilised above 1.1950 and unable to break above the 1.2000 level even with the Euro area facing major challenges over trade, inflation, defence policy and political direction.

Bank of America is still backing gains to 1.2200 by the end of June. Goldman Sachs expects a smaller advance to 1.2050.

The Euro area also faces increased political uncertainty, especially in France, but EUR/USD is trading just above 1.08 with solid support on dips.

According to ING on EUR/USD; “the Euro seems to be embedding too much optimism, and our preference remains for a weakening in the pair in the coming weeks.”

These uncertainties will feed into ECB policy and currency markets and are liable to spark a jump in GBP/EUR volatility.

On Wednesday, the US is due to announce tariffs on EU exports with the EU deliberating over potential retaliation.

ING commented; “The euro remains rather resilient to the whole tariff story anyway: despite the EU being among the biggest victims of this week’s round of tariffs, European currencies are faring much better than China proxies or CAD.”

There is greater uncertainty over the April ECB policy decision with reports that a greater number of central bank officials are backing a pause at the April meeting.

The headline Euro-Zone inflation rate edged lower to 2.2% for March from 2.3% previously and in line with consensus forecasts while the core rate declined slightly more than expected to 2.4% from 2.6%.

The inflation rate may have been pushed lower by a late Easter as seasonal price increases will be seen in April this year.

According to Danske Bank; “Though more ECB officials appear ready to accept an April rate cut pause, the declining inflation still paves the way for an ECB cut in April in our view.”

The ECB, however, also has to factor in fiscal expansion plans and trade uncertainty.

According to Commerzbank; "Now that the appreciation of the euro in the wake of the German fiscal package has corrected somewhat in recent days, the euro's future strength is likely to depend primarily on how much the ECB delays further interest rate cuts.”

It added; “If the ECB refrains from cutting rates in April and instead emphasises the uncertainties regarding inflation due to possible US tariffs, this would be a strong signal for the euro.”

In France, Marine Le Pen, the leader of the right-wing National Rally party, was found guilty of embezzling EU funds and sentenced to prison and a fine, as well as being banned from standing in elections for the next five years.”

Commerzbank commented; “This is a major setback for Le Pen, especially with the French presidential elections in 2027, and fuels fears that France is becoming ungovernable, which does not bode well for the euro area."

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TAGS: Pound Euro Forecasts