Created on February 04, 2025

• As you can see, the Euro has shown itself to be very noisy as the market gapped lower due to the noise that traders had to sift through overnight with the Trump administration firing off 25% tariffs against both Mexico and Canada.
• Then, Trump suggesting that there was something coming for the EU as well.
• We have recovered quite a bit, at least enough to fill the gap, and now we’ve sold off a little bit.

I think what this means at the end of the day is going to be a situation where we are just fading rallies, which has been the game all along. I don’t like the idea of buying the euro and I think there is a hard ceiling near the 1.05 level. With that being said, I don’t even think we get that far. That doesn’t mean that we can’t rally for some time, and it doesn’t mean that we won’t have a situation where things will be volatile and noisy, but I am looking for cheap US dollars. What I mean by that is that if the market does rally and show signs of exhaustion, then I’m willing to short it.

Where am I Watching?

If we were to break down below the 1.02 level, then I think the Euro goes to parity. I think the Euro goes to parity sooner or later anyway, and really that just speeds up the whole timeline. But I think we are probably due for some sideways bouncing around right now in a consolidation range for a market that of course has been very noisy for some time and sees a major difference between the central bank policies. After all, the European Central Bank has cut rates a couple of times while the Federal Reserve is still on hold. That in itself continues to make this an intriguing position to the downside.

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February 3, 2025 – Written by Frank Davies

STORY LINK Pound Sterling Rises vs Euro and Dollar as UK Avoids Tariffs, for Now

The US Dollar (USD) spiked higher against rival currencies such as the Euro (EUR) and Pound (GBP) on Monday following President Trump’s move to impose 25% tariffs on Canada and Mexico.

The dollar index jumped to 2-week highs at 109.80 and close to 2-year highs.

ING commented; “Unless Donald Trump surprises with a very last-minute de-escalation in tariffs (unlikely) expect DXY to stay bid near this year’s high.”

The Pound to Dollar (GBP/USD) exchange rate slumped to 1.2250 before a recovery to around1.2300.

According to ING; “A bias towards 1.2200 and possibly 1.2100 for GBP/USD looks likely this week, depending on the US trade story.”

Trump insisted that tariffs on the EU were inevitable while the UK was out of line, but he considered that something could be worked out.

The Pound to Euro (GBP/EUR) exchange rate hit 20-day highs at 1.2030 before settling at 1.2020.

According to ING; “The growing prospect of a global trade war and tariffs heading towards the EU is a clean euro negative.”

Trump used the International Emergency Economic Powers Act (IEEPA) to impose 25% tariffs on Canada and Mexico with a 10% tariff on China from February 4th.

ING commented; “Investors will be on tenterhooks to see whether any phone conversation today between President Trump and his counterparts in Canada and Mexico can yield any results in 24 hours. Probably not is most people’s guess.”

It added; “The trouble for investors, however, is that the off-ramp to these tariffs remains unclear.”

Danske Bank took a similar view; “Overall, the broad USD remains the key beneficiary of the tariffs and will likely continue to find support amid souring sentiment as markets reprice the risks of escalating trade tensions.”

According to MUFG; “Overall, the tariff announcements from President Trump over the weekend support our forecasts for a stronger US dollar during the first half of this year.”

In theory, the UK should be less vulnerable to the imposition of tariffs, especially as the UK does not run a significant trade surplus with the US.

Nevertheless, the overall fundamentals are fragile and wider deterioration in risk appetite would pose important risks to the UK economy and currency.

Danske Bank commented; “the fragile fiscal position combined with conducting an expansionary fiscal policy leaves the UK vulnerable to the global backdrop. Especially when we see a substantial tightening of global financial conditions, a sharp move higher in global rates combined with historically elevated levels in global long-end yields.”

It added; “This is further amplified in an environment characterised by a sharp sell-off in risk where liquidity becomes scarce since the UK runs a large current-account deficit, which makes GBP vulnerable whenever capital inflows fade.”

Saxo chief macro strategist John Hardy noted the risk of damage to the global outlook; “we are effectively in a trade war with all the associated fallout for growth and prices and disruptions to supply chains and companies.”

He added; “The chief longer-term risk is one of stagflation: weak growth with higher inflation levels.”

Trade concerns will be another headache for the Bank of England which is already facing major uncertainty over the domestic outlook.

There are strong expectations that the Bank of England will cut interest rates this week with a 25 basis-point move to 4.50% from 4.75%.

At this stage, there has been a limited shift in medium-term pricing with money markets pricing in 80 basis points of cuts by the end of 2025 from 75 basis points late last week.

Exchange Rates Today: 03 Fed 2025 12:45

Pound to Euro exchange rate (GBP/EUR) is 1.20171 (+0.19%)
Pound to Dollar exchange rate (GBP/USD) is 1.23395 (+0.4%)
Pound to Swiss Franc exchange rate (GBP/CHF) is 1.12832 (+0.31%)
Pound to Canadian Dollar exchange rate (GBP/CAD) is 1.81007 (+0.1%)
Pound to Australian Dollar exchange rate (GBP/AUD) is 2.00522 (+0.21%)
Pound to New Zealand Dollar exchange rate (GBP/NZD) is 2.21528 (+0.39%)
Pound to Norwegian Krone exchange rate (GBP/NOK) is 14.07746 (-0.09%)
Pound to Japanese Yen exchange rate (GBP/JPY) is 190.57972 (-0.18%)
Pound to Swedish Krona exchange rate (GBP/SEK) is 13.81153 (+0.11%)
Pound to South African Rand exchange rate (GBP/ZAR) is 23.27853 (-0.43%)
Pound to Israeli Sheqel exchange rate (GBP/ILS) is 4.44751 (+1.04%)
Pound to Norwegian Krone exchange rate (GBP/NOK) is 14.07746 (-0.09%)
Pound to Singapore Dollar exchange rate (GBP/SGD) is 1.6849 (+0.21%)

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TAGS: Pound Euro Forecasts

Created on February 04, 2025

• The British pound has had a wild ride during the trading session on Monday as we gapped lower to kick things off only to fill the gap later.
• Keep in mind that a lot of what you are seeing here is panic due to new tariffs coming out of the United States.
• As is usual trading in an era of the Trump administration, things have been volatile.

Unsurprisingly, we’ve already seen a couple of countries come into the fold and be willing to negotiate further, Mexico being the biggest one, of course, as they have said that they would bring 10,000 National Guard troops to the border to stop the fentanyl flowing across the border, as well as migrants. Furthermore, you also have to keep in mind that there was a little snippet today about how the EU might get tariffs. He said that the UK had been taking advantage of things, but he thought, and he made it sound like, the situation in the UK was a minor one that could probably be worked through pretty easily. With that being said, it does make sense that the British pound has rallied.

Mexico, Canada, and China

But a lot of what you’ve seen across the Forex world has been in reaction to Mexico coming to the table and willingly looking to help out the United States. That suggests that perhaps this won’t be as ugly as it once was. As I record this, we’re still waiting to see what Justin Trudeau has to say in Canada, which is weird because he resigned, but that’s a whole different story.

With all of this being said, this is a market that I still favor with the downside. That hasn’t changed. This just sets up another opportunity to buy cheaper US dollars down the road. I still believe that the 1.25 level is massive resistance, especially now that we have the 50 day EMA there. So, I’ll be willing to take advantage of any weakness, perhaps some long wick or something to that effect to the upside that shows that we are running out of momentum.

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