February 28, 2025 – Written by Tim Boyer
STORY LINK Pound to Euro Forecast: Two-Month Best Now, 1.2350 in Six Months
The Euro has been hampered by a renewed threat on tariffs on EU goods from President Trump with the Pound to Euro (GBP/EUR) exchange rate strengthening to 2-month highs just above the 1.2100 level, but has not made a convincing break higher at this stage.
Danske Bank expects that GBP/EUR will strengthen to 1.2350 on a 6-month view.
Markets are, however, also having to factor in the Ukraine situation. In essence, US trade policies are likely to be a threat to the single currency, but a Ukraine ceasefire would potentially support the Euro.
ING noted that Ukraine’s hopes have helped underpin the Euro but added, “the threat of tariffs looms large and could easily insert a risk premium back into those currencies in the firing line.”
US President Trump has threatened to impose 25% tariffs on US imports from the EU, and an announcement will be coming soon.
ING commented; “Our baseline view is that tariffs will go into place in April.”
Tobin Marcus, head of US policy and politics at Wolfe Research, commented, “The 25% threat that he threw out today is in line with the high end of the range that he previously indicated.”
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He added; “It’s a number that’s concerning – certainly should be concerning – for the trans-Atlantic trade relationship, but not totally out of the blue.”
Danske Bank analyst Mohamad Al-Saraf considers that the pound could be a relative outperformer because the trade deficit between the U.S. and Britain is relatively small.
According to Al-Saraf; “If we actually see tariffs being implemented, we expect the pound to outperform in the G10 space. Looking at the price action in the past few months, the pound is relatively immune to all this tariff talk.”
ING considers the potential implications; “The EU is better prepared to tackle Trump 2.0, but it still faces a complex challenge in countering potential US tariffs.”
It added; “While the bloc has several options at its disposal – including retaliatory tariffs on key US exports and the implementation of a digital services tax – the effectiveness of these measures will depend on its ability to act swiftly and cohesively, with a reliance on widespread member state support.”
There will be potentially important implications for monetary policy.
MUFG commented; “The looming threat of tariff hikes on the EU in the coming months continues to pose downside risks to growth in the euro-zone and may encourage the ECB to keep lowering rate at every meeting at least until rates move closer to President Lagarde’s estimated range for the neutral rate between 1.75% and 2.25%.”
Further aggressive rate cuts would tend to undermine the Euro.
MUFG has, however, noted some hawkish comments from ECB officials and added; “The comments suggest to us that it is far from a done deal that the ECB will cut rates both in March and April as currently priced in. It poses one potential upside risk for euro in the near-term although we still expect the policy rate to fall to 2.00% this year.”
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TAGS: Currency Predictions Pound Euro Forecasts
