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Currencies Direct | GBP/EUR pressured amid the market convulsions triggered by Trump's tariff
06/05/2025
April proved to be another highly volatile month for the pound euro exchange rate as the introduction of US President Donald Trump's reciprocal tariffs triggered significant market turmoil.
What happened last month?
As Trump's trade policy triggered a confidence crisis in the US dollar, investors sought opportunities in other safe-haven assets through April, which contributed to a sharp appreciation of the euro in April
The formation of an SDU/CSU and SPD coalition government in Germany supported the upside in the single currency through the first half of the month. The perceived stability of the 'grand coalition' government underpins the recent optimism which has surrounded the Eurozone's largest economy.
EUR exchange rates faced resistance in the second half of the month as the European Central Bank (ECB) cut interest rates and signalled it was open to additional easing depending on the fallout from Trump's tariffs.
However, the continued weakness of the US dollar and a stronger-than-expected Eurozone GDP print allowed the single currency to retain the bulk of April's gains as the month came to a close.
The pound outperformed many of its peers through the first part of April amid hopes the UK economy would weather Trump's tariff agenda better than that of many other US trading partners.
Sterling sentiment was subsequently shaken by unease in the UK bond market as yields on 30-year gilts surged to levels not seen since 1998, surpassing those reached during the UK's bond market crisis at the start of the year.
Mixed trading stimuli then pulled GBP exchange rates in opposite directions in the second half of April.
Initially supportive of Sterling were upbeat UK growth figures and optimism over a UK-US trade deal following comments from US Vice President JD Vance.
However, this gave way to fresh selling pressure in the second half of the month as weaker-than-expected UK wage and inflation figures, coupled with a shock contraction in services sector activity, stoked Bank of England (BoE) interest rate cut expectations.
GBP/EUR forecast
Looking ahead, US trade policy is likely to continue to infuse volatility into the FX market through May.
GBP and EUR investors will be keeping a close eye on upcoming data for great clarity on how the tariffs may be impacting both the UK and Eurozone economies.
At the same time, an expected 25bps interest rate cut from the Bank of England’s (BoE) is likely to drag on the pound this month, particularly if policymakers hint that more easing may be needed in the second half of the year.
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