The EUR/GBP exchange rate edged lower on Friday, hovering around 0.8490 during early Asian trading hours. The decline follows a brief rally earlier in the week, fuelled by mounting speculation of a potential trade agreement between the United States and the United Kingdom, which lent fresh support to the pound sterling.
Investor sentiment was buoyed by reports suggesting that the UK may benefit from more favourable US trade terms, particularly under proposed policies by former President Donald Trump. The UK is expected to face one of the lowest additional US tariff rates among its major trading partners, estimated at just 10%.
This development has helped sustain short-term strength in the pound. However, with the UK’s broader economic outlook still mixed, the downside potential for the EUR/GBP pair may be limited. Recent data points to ongoing softness in manufacturing.
April’s UK Manufacturing PMI confirmed a continued slowdown, with export orders registering their steepest decline in nearly five years. Domestic tax adjustments and external tariff pressures have added further strain to business conditions.
Bank of England Governor Andrew Bailey also warned of heightened risks tied to disruptions in global trade. His comments prompted markets to reassess the BoE’s rate path, with traders now pricing in a nearly certain 25 basis point cut at the upcoming policy meeting on 8 May. According to Reuters data, this would lower the benchmark interest rate to 4.25%.
On the European front, the euro also remains under pressure. Markets have almost fully priced in a 25 basis point interest rate cut by the European Central Bank in June. Policymakers are increasingly concerned about subdued inflation and persistent economic uncertainty—exacerbated by transatlantic trade tensions.
As the EUR/GBP pair reacts to trade developments, central bank policies, and key economic indicators, traders must remain agile and informed. The volatility driven by interest rate expectations, trade negotiations, and Eurozone uncertainty offers both risks and opportunities for strategic positioning.
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