- GBP/EUR puts in a strong bounce
- But this is not enough to turn the near-term trend
- Falling oil prices support GBP
- EUR meanwhile faces renewed trade war prospects
Photographer: Alain ROLLAND. Copyright: © European Union 2025 - Source: EP.
The Pound to Euro exchange rate (GBP/EUR) is at 1.1726, up from Monday's low of 1.1642.
Pound Sterling rallied broadly in response to relief that Iran and Israel had agreed a ceasefire, but it's still too soon to say whether the recent downtrend is over.
As our Week Ahead Forecast shows, we were looking for a slight lift in the rate through to the midweek session, ahead of a resumption lower:
Above: GBP/EUR at daily intervals with Monday's Week Ahead Forecast annotations shown.
To be sure, the 0.40% gain witnessed on Tuesday was bigger than anticipated, yet it failed to take the exchange rate back through the nine-day exponential moving average (the blue line in the above chart). This would mean that the near-term outlook still favours the downside.
Although the Pound is not 'out of the woods' yet, the prospect for a sideways drift begins to grow as the nine-day EMA flattens out. This lessens the odds of another drop that could have taken the exchange rate to as low as 1.16 in the next two weeks.
Driving the Pound's recovery was the fall in oil prices, which dropped by more than 5.5% to $66.46 a barrel on Tuesday after Trump announced a ceasefire between the two Middle Eastern nations, easing fears that Iran would block the key Strait of Hormuz, through which a fifth of the world's oil flows.
Above: Oil prices retreat, to investors' relief.
The escalating conflict has raised stock market volatility, to which the Pound-Euro exchange rate is negatively correlated.
The flattening of volatility is therefore inherently supportive of a recovery. "Had the crisis escalated and had oil prices surged, the implications for inflation and growth around the world would have overwhelmed the messages from the recent figures," says Jane Foley, Senior FX Strategist at Rabobank.
Foley adds that this month's downtrend in GBP/EUR has run into support in the 1.17 area.
New risks for the Euro are building on the prospect of a U.S.-EU trade war, as the European Union threatens to impose retaliatory tariffs on U.S. imports, including Boeing aircraft, if the U.S. imposes a baseline levy on EU goods.
File image of Stéphane Séjourné. Photo by Alexis HAULOT © European Union 2025 - Source : EP.
The EU is working to reach a deal with the U.S. before the July 09 deadline, where EU exports will be tariffed by 50%.
"We will need to retaliate and rebalance in some key sectors if the U.S. insists on an asymmetrical deal... [including if the] outcome of the negotiations is that a 10% tariff remains," says the EU's industry chief, Stephane Sejourne.
U.S. tariffs have thus far been a contributor to the Dollar's slide in 2025 as they are expected to hurt American consumers and economic growth prospects, while the Euro has proven the major beneficiary.
However the FX market has thus far not had to deal with the specifics of an EU-U.S. trade war, where EU exports to the U.S. are seriously impacted.
As this issue evolves in importance ahead of the July 09 deadline, the recovery in GBP/EUR could become more pronounced.