The EUR/GBP currency pair rose slightly to around 0.8390 in early European trading. The euro strengthened against the British pound following a reduction in trade tensions between the European Union and the United States. Market participants are now looking ahead to the German unemployment rate data later in the day, which may influence further movements.
U.S. Suspends Tariffs, Boosting Euro Sentiment
U.S. President Donald Trump suspended the threatened 50% tariffs on European imports until July 9. This decision came after a weekend phone call with European Commission President Ursula von der Leyen. The temporary tariff pause has increased hopes of a trade deal between the U.S. and Europe, supporting the euro in the short term.
ECB Hawkish Comments Strengthen the Euro
Adding to euro support, Robert Holzmann, a European Central Bank (ECB) policymaker known for his hawkish stance, said the ECB should delay further rate cuts until at least September. Holzmann pointed to the escalating trade war between the U.S. and Europe as a reason for caution. He expressed that there was “no reason” for the ECB to reduce rates in its June and July meetings. His comments helped reinforce euro strength against the pound.
BoE Rate Cut Expectations Weaken, Supporting Pound
Meanwhile, the British pound found some support as traders grew more confident the Bank of England (BoE) will postpone its easing cycle. Stronger-than-expected UK inflation data for April played a key role in shifting market expectations.
The probability of a BoE rate cut in August dropped from 60% to 40% following the inflation report. However, interest rate futures still indicate that investors expect about 37 basis points in rate cuts by the BoE by the end of 2025.
In summary, the EUR/GBP pair rose modestly as easing U.S.-EU trade tensions and hawkish ECB signals bolstered the euro. At the same time, firmer UK inflation data reduced expectations of near-term BoE easing, providing some support for the pound. Traders will closely watch German unemployment figures for further direction.
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