The EUR/GBP currency pair continued its upward trajectory during European trading hours, edging closer to the psychological 0.8600 level. This marks the fifth consecutive session of gains, driven largely by growing optimism surrounding easing trade tensions and shifting expectations in monetary policy on both sides of the Channel. An in-depth review of the topic is provided by the team at Lesrouleaux in this article.
Trade Tensions: Cautious Optimism Takes Hold
Market sentiment received a significant boost following remarks by the US President, who indicated a willingness to re-engage in multilateral negotiations aimed at reducing global trade frictions. This has fueled speculation that the current tariff-heavy environment could see a near-term thaw.
Supporting this outlook, US Treasury Secretary Scott Bessent revealed that more than 70 countries have proactively reached out to the US to discuss potential revisions to existing tariff measures.
The immediate impact of these developments is a modest resurgence in risk appetite, pushing investors toward Euro-denominated assets while also adding a layer of support to the British Pound (GBP). However, these diplomatic overtures come amid a backdrop of continued retaliatory maneuvering.
EU Prepares Countermeasures
Despite the diplomatic tone, the European Commission remains cautious. Officials are actively preparing a retaliatory tariff package valued at EUR22.1 billion, potentially targeting a wide range of US exports with tariffs as high as 25%.
In a recent bilateral meeting with Chinese Premier Li Qiang, Commission President Ursula von der Leyen emphasized the EU’s commitment to a “negotiated resolution” but underlined that continued US protectionist policies have led to “widespread disruption” in transatlantic and global trade channels.
While the proposed tariffs may strain US-EU relations in the short term, the EU’s measured stance suggests that negotiations remain a viable path forward. Still, the threat of escalation could undermine longer-term confidence in the Eurozone’s external trade outlook, with GDP growth forecasts under renewed scrutiny.
Sterling Support: Gilt Yields and Resilience to Trade Shocks
On the UK side, the British Pound (GBP) continues to find support from elevated gilt yields, particularly at the longer end of the curve. The 10-year UK gilt yield, which hovers around 4.66%, reflects rising investor confidence in the UK’s economic resilience despite external trade shocks.
The UK’s limited exposure to US tariffs, estimated at just 10%, further bolsters the narrative of relative stability. Additionally, policymakers have suggested that the UK can reorient its supply chains, potentially replacing disrupted US imports with alternatives from Europe or the Commonwealth. The UK government’s estimates suggest that the direct GDP impact of the new tariff regime could be less than 0.1%, a negligible figure in macroeconomic terms.
Still, interest rate expectations remain a key point of differentiation. The Bank of England (BoE) is now widely expected to initiate a rate cut in May, with money markets fully pricing in the move.
This marks a significant shift from just weeks ago, when the probability of a May cut was priced at only 50%. Furthermore, market participants now expect the BoE to deliver three rate cuts by year-end, reinforcing the dovish tilt in UK monetary policy.
Technical Perspective: EUR/GBP Eyes 0.8600 Resistance
From a technical standpoint, EUR/GBP is exhibiting a strong bullish trend underpinned by a series of higher highs and higher lows. The pair is trading just below the 0.8600 resistance, a level not breached since early February. A successful close above this level could open the path toward the 0.8635-0.8650 zone, representing the next key resistance area based on the January swing highs.
On the downside, immediate support lies around the 0.8540-0.8550 range, which coincides with the 50-period simple moving average (SMA) on the 4-hour chart. A break below this could trigger a short-term correction, although fundamentals currently favor sustained Euro strength–at least until the BoE’s May decision introduces further volatility.
Conclusion: Short-Term Gains, But Medium-Term Uncertainty
The current trajectory of EUR/GBP reflects a delicate balancing act between improving trade optimism, diverging monetary policy expectations, and relative economic resilience. While the Euro has gained ground in recent sessions, the dovish stance of the ECB, coupled with potential retaliatory tariffs, may limit further upside.
Conversely, the British Pound appears buffered by resilient yields and a modest impact from global trade disruptions but remains vulnerable to deeper BoE rate cuts. The outlook for EUR/GBP will thus hinge on the pace of diplomatic progress in global trade negotiations and the evolving tone of central bank commentary over the next several weeks.
As of now, momentum favors the Euro, but the 0.8600 mark may serve as a short-term inflection point, demanding clear policy signals to drive a breakout or reversal.
COMTEX_465096001/2922/2025-05-01T01:40:19
