EUR/GBP Outlook: Pound Dips vs Euro on Drop in UK gilts, Rise in Yields

April 10, 2025 - Written by James Fuller

STORY LINK EUR/GBP Outlook: Pound Dips vs Euro on Drop in UK gilts, Rise in Yields

Pound Sterling is under pressure as gilts drop. EURGBP rose to 0.866 on Wednesday. The S&P500 closed 9.52% higher on Wednesday as Trump paused tariffs at a 10% rate. China was hit with further tariffs as the trade war escalates.

It’s a challenge to keep up with the news flow and manic moves across global markets. Wednesday was perhaps the wildest session of the recent week, and the 9.52% gain in the S&P500 was the third largest ever and has only been bettered by bear market rallies in 2008.

President Trump announced a 90-day tariff reprieve (excluding China) just two days after calling the same story fake news. The bond markets may have forced his hand - when stocks and bonds fall together there is no safe haven. This is what he posted on Truth Social

“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately.”

Looking ahead, the US still has a major issue with China, and Trump’s poste increased tariffs yet again.

“Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately."

China has vowed to fight to the end and increased its tariffs to 84%. It seems both sides are prepared to effectively stop trading with eachother.


As well as a huge rally in stocks, other market made significant moves, with gold, copper and oil all surging higher. Higher oil and higher yields are problematic for the US and for Trump who has vowed to lower them. The 10Y yield closed at 4.3%, 12% higher than Friday's low.

Markets Recover but Remain Edgy

The tariff reprieve has lifted spirits and sparked some huge rallies in risk assets, but risks remain high and the volatility in markets is a sign of underlying problems. As ING note:

“The increased volatility will also remain, preventing a full restoration of risk sentiment. Markets will not easily forget these episodes with wide market swings and thus the demand for safe assets should remain elevated. 10Y Bunds, for one, significantly outperformed swaps during the peak stress episode underscoring their safe haven role, even if they are now trading above the swap curve again.”

Currencies have remained stable but with a “risk off” tone as safe havens like the yen and Swiss Franc are outperforming, as is the euro due to its liquidity and stability. A flee from US assets may be underway and the US dollar remains under pressure near the 2025 lows. Notably, this is against a backdrop of higher yields.

The Pound Plunges Against the Euro

Market volatility has been weighing on the pound which is not seen as a safe haven. EURGBP broke above 0.85 on Monday and already reached 0.866 on Wednesday.


Sterling weakness stems from the drop in UK gilts and rise in yields which has been exacerbated by tariffs and global market stress. We know from earlier occurrences this not a positive for the pound and reflects tight finances. As ING explain:

“That UK gilts even underperformed US Treasuries is quite remarkable and probably very unnerving for the UK's Debt Management Office. One view here is that the DMO is already pushing the limits with £300bn of new issuance this year and that any greater slowdown in the UK economy, which would hit revenues/raise welfare spending, would only hit gilts harder. Clearly, then, the gilt market is an Achilles heel for sterling.”

Three cuts are now expected from the BoE who are coming under more pressure to support the economy, even though inflation concerns persist.

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TAGS: Euro Pound Forecasts