The Pound to Euro exchange rate (GBP/EUR) soared to a high of 1.21 on Monday — its strongest since April 2022. This impressive spike followed a Euro selloff but was met with resistance, prompting a retracement by Tuesday. Here’s a look at the factors influencing this movement:
🌐 Key Drivers Behind GBP/EUR Movement
1. Euro Weakness Amid U.S. Trade Concerns: Fears of renewed U.S. tariffs on Europe under Donald Trump’s second presidency have added pressure on the Euro. The U.S. remains the EU’s largest trading partner, raising concerns about export tariffs.
2. German Political Instability: Uncertainty is rising in Germany after Chancellor Scholz’s coalition collapsed, creating a leadership vacuum amid stagnating growth and possible snap elections.
3. U.S. Policy Shift: The appointment of Trump allies critical of China, such as Marco Rubio, to key U.S. roles has stirred speculation about stricter trade policies that could impact Europe.
📊 Market Implications
Resistance at 1.21: The Pound faced technical resistance at 1.21, suggesting some short-term consolidation may follow this peak.
Continued Euro Vulnerability: The “Trump trade” remains a source of pressure, keeping the Euro’s trajectory downward for now.
💬 Expert Insights
"The Eurozone is particularly vulnerable to Trump's tariffs, and markets are already factoring in potential risks," notes Joe Tuckey, Head of FX Analysis at Argentex.
"Germany’s political uncertainty only adds to the negative sentiment surrounding the Euro," says Julian Jessop, economist and IEA Economics Fellow.
📈 Future Outlook
Near-Term Consolidation: GBP/EUR may consolidate around 1.21 with technical resistance.
Long-Term Volatility for the Euro: With Trump’s policy shifts and German political uncertainty looming, the Euro may stay under pressure in the months ahead.
🌍 Conclusion
The Pound’s surge to 1.21 against the Euro marks a pivotal moment, driven largely by Euro weakness amid trade and political concerns. As investors watch for signs of U.S. policy and Eurozone stability, GBP/EUR may see further shifts, with Euro vulnerability likely to persist.