ECB President Christine Lagarde. Image: Andreas Reeg/ECB.
Pound Sterling exits an uptrend against the Euro, tariffs and ECB decision in focus.
The Pound to Euro exchange rate (GBP/EUR) uptrend that has been underway since mid-April has failed and the week ahead forecast sees a risk that a setback deepens.
The pair fell from a high at 1.1965, reached on Thursday 29th, to 1.1850, which is Monday's low.
The April-May uptrend is annotated by the purple line in the below chart, and it provided us a decent steer as to how price action would play out over the course of the past five weeks or so. At one stage last week it looked as though a climb to 1.20 was a good bet.
Above: GBP/EUR at daily intervals.
But with the uptrend line being pierced, and the 9-day moving average turning lower (blue line), the outlook becomes mixed and we would anticipate further action around current levels in the earlier part of the coming week.
Note that the 50-day exponential moving average (EMA) is nearby at 1.1842, and there is a chance it protects the Pound from further losses and delivers a sideways churn in the coming week.
If this is the case, then the recent setback could be short-lived and a return to levels above 1.19 becomes possible.
Indeed, for now, we would prefer any breaks out of a consolidative period to be to the upside, given the prevailing trend of recent weeks was higher.
Should a breach below the 50-day EMA fail to hold the exchange rate, then a deeper setback becomes likely, and a drift into the 1.17's then occurs.
The setback for GBP/EUR came after the Euro rallied through the Thursday and Friday sessions after the U.S. Court of Appeals for the Federal Circuit temporarily reinstated President Donald Trump's "Liberation Day" tariffs, which had been blocked earlier in the week by the U.S. Court of International Trade (CIT).
The Court of Appeal granted an emergency motion from the Trump administration arguing that a halt is "critical for the country’s national security".
Official White House Photo by Daniel Torok
The Euro is a preferred alternative to the Dollar when trade anxieties are rising, and it also tends to do well against most other major currencies during periods of tariff-related anxieties, including Pound Sterling.
The soft start to Monday's trade follows President Trump's announcement, made after the close of New York trading on Friday, that he will double tariffs on imports of steel and aluminium from 25% to 50% from 4 June.
The tariff decisions confirm ongoing policy uncertainty, which can assist the Euro against the Pound, ensuring GBP/EUR stays well off the 2025 highs at 1.2150.
"In the long term, it will become increasingly clear that the U.S. administration has no intention of abandoning tariffs," says Michael Pfister, FX Analyst at Commerzbank.
Image © European Central Bank, reproduced under CC licensing
The domestic calendar is dominated this week by the European Central Bank (ECB) decision on Thursday, where another 25 basis point interest rate cut is expected, taking the base rate to 2.0%.
The decision won't impact the Euro, given it is well anticipated, leaving it up to Christine Lagarde's guidance to provide interest.
With inflationary pressures cooling in the Eurozone, there is little incentive for Lagarde to discount further interest rate cuts, particularly if the ECB thinks U.S. tariffs will negatively impact growth going forward.
Should Lagarde encourage markets to expect further cuts, the Euro would likely soften alongside Eurozone bond yields.
However, it is highly likely that Lagarde will deliver the message that interest rates are not on a preset path and the ECB remains data-dependent.
This will offer a limited opportunity to send Euro exchange rates in a meaningful direction, and post-ECB moves are likely to be faded as a result.