Noticias de la Cámara
GBP/EUR rocked by EU-US trade drama
19/08/2025
Trade in the pound euro exchange rate was mixed through July, amid transatlantic trade uncertainty and growing concern over the UK's fiscal outlook.
What happened last month?
The euro opened July on strong footing, aided in large part by its strong negative correlation with the US dollar.
However, that momentum quickly waned amid growing concerns over the apparent stalling of EU-US trade talks.
The euro mounted a recovery following the European Central Bank's (ECB) July policy meeting as the bank paused its cutting cycle for the first time in a year. Which, coupled with hawkish accompanying remarks from ECB President Christine Lagarde, propelled GBP/EUR to a 20-month low.
However, the euro's gains didn't last for long as EUR investors were left underwhelmed by the details of the EU-US trade agreement, while the deal also received criticism from key EU nations such as France and Germany.
In contrast, the pound trended broadly lower through most of July, with Sterling's initial losses coming as questions over the future of Chancellor Rachel Reeves unsettled markets.
Adding to headwinds, the Office for Budget Responsibility warned that public debt could balloon to 270% of GDP by 2070 under current policy, heightening fears over the UK's fiscal trajectory and stoking bets for further tax hikes from the Chancellor in the autumn.
Dovish comments from Bank of England (BoE) Governor Andrew Bailey soon followed, suggesting steeper rate cuts may be warranted should UK labour market data weaken. This placed additional pressure on GBP through the middle of July, although May's payroll revisions were seen as easing pressure on the BoE and provided some modest support to Sterling.
Fresh losses were then seen in the second half of July as weak UK PMIs reignited growth concerns.
GBP/EUR forecast
A key catalyst for movement for the GBP/EUR exchange rate in July will be the BoE's latest policy meeting.
A 25bps rate cut is broadly expected, which is likely to weigh on the pound (GBP), particularly if the bank hints at another cut before the end of 2025.
Meanwhile, resistance to the EU-US trade deal within Europe could act as a headwind for the euro in the coming weeks. At the same time, signs of slack in the Eurozone economy could also drag on EUR sentiment.
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