The EUR/GBP pair recovered losses from earlier sessions and traded around 0.8410 during Friday’s Asian session. The euro gained support following the release of robust German economic data. The German Statistics Office reported that Q1 GDP grew 0.4% month-on-month (MoM), outperforming the expected 0.2% increase. Meanwhile, the annual GDP rate held steady at 0%, surpassing forecasts of a 0.2% decline.
Potential Headwinds for the Euro: US-EU Trade Tensions
Despite positive economic indicators, the euro faces potential downward pressure amid rising risk aversion linked to escalating US-EU trade tensions. The Financial Times reported that President Trump is pressuring the European Union to reduce tariffs, warning of further tariffs if demands are unmet. US Trade Representative Jamison Greer is expected to inform EU Trade Commissioner Maroš Šefčović that recent EU explanations on tariffs have fallen short of US expectations.
ECB Officials Signal Cautious Optimism
European Central Bank (ECB) policymaker Boris Vujčić commented that eurozone economic growth remains positive but slow. He anticipates inflation to near the 2% target by year-end and to stabilize around that level by early 2026. German central bank president and ECB Governing Council member Joachim Nagel suggested the current ECB interest rate is not yet restrictive, implying the possibility of further monetary policy adjustments.
Stronger UK Data Bolsters the Pound
The British pound strengthened following surprisingly strong UK retail sales data for April. Retail sales rose 1.2% MoM, well above the expected 0.2%. This marked improvement capped a series of positive UK retail indicators:
March retail sales revised upward from 0.1% to 0.4% MoM
Annual retail sales growth accelerated to 5.0% in April from 1.9% in March
Core retail sales (excluding fuel) surged 5.3% YoY in April, compared to 2.6% in March
Adding to the pound’s gains, the GfK UK consumer confidence index improved by 3 points in May to -20, beating expectations of -22 and reversing April’s decline to -23. Although confidence remains below the long-term average, this signals cautious optimism among consumers.
Outlook
While the euro has found short-term buying support from better-than-expected German GDP data, ongoing US-EU trade tensions and ECB comments indicate a cautious environment. Meanwhile, robust UK retail sales and improving consumer confidence are likely to limit the upside for EUR/GBP, providing support for the British pound in the near term.
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