The EUR/GBP cross fell to around 0.8445, ending a three-day winning streak in early Tuesday trading. The euro weakened against the pound as trade tensions flared up again. Traders are bracing for the release of the first reading of the Eurozone Harmonized Consumer Price Index (HMI) later on Tuesday.
Despite Trump’s announcement that he would double import tariffs on steel and aluminum to 50% from Wednesday, the European Union said on Monday that it would strongly urge the United States to reduce or remove tariffs this week. Traders will be closely watching the progress of the US-EU negotiations as the Trump administration has asked its trading partners to submit their best offers in order to reach a deal by July 8. Any signs of progress in trade talks could help limit the euro’s losses.
The European Central Bank is widely expected to cut its policy rate by another 25 basis points at its June meeting, bringing the deposit rate to 2.00%. Traders will get more clues from a speech by ECB President Christine Lagarde later on Tuesday. Lagarde’s dovish comments could drag the euro down.
On the other hand, growing expectations of a pause in interest rate cuts by the Bank of England (BoE) could support the pound and create headwinds for cross currencies. According to Reuters, futures markets have priced in a drop in borrowing rates of around 38 basis points by the end of the year, implying a 25 basis point cut by the BoE and a roughly 50% chance of a second rate cut.
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