22 Jan 2025

• EUR/GBP trades flat around 0.8440 in Wednesday’s early European session. 
• The Euro weakens after Trump vowed to hit the EU with tariffs. 
• UK Unemployment Rate rose in the three months through November, increasing the chance the BoE will cut rates next month
• The EUR/GBP exchange rate remains stable at approximately 0.8440 on Wednesday during the initial hours of European trading. The tariff threats posed by US President Donald Trump may negatively impact the Euro (EUR) in relation to the Pound Sterling (GBP) in the short term. Nevertheless, the increasing probability of a rate cut by the Bank of England (BoE) next month could limit the potential decline for this currency pair. Investors are expected to pay close attention to the address by European Central Bank (ECB) President Lagarde later on Wednesday.
• Trump announced on Tuesday his intention to impose tariffs on the European Union (EU) and indicated that his administration is considering 25% tariffs on Canada and Mexico, in addition to duties on China. Valdis Dombrovskis, the EU's commissioner for the economy, stated on Wednesday that Europe would respond to any tariffs enacted by Trump in a measured manner.
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• Dombrovskis remarked, "If there is a need to defend our economic interests, we will respond in a proportionate way." Concerns regarding a potential economic slowdown in the Eurozone, coupled with the uncertainty surrounding Trump's tariff threats, may place downward pressure on the euro.
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• Conversely, financial markets are increasingly anticipating a possible interest rate cut at the upcoming Bank of England (BoE) meeting, following recent labor market data from the UK that indicated rising unemployment and wage growth. This situation could negatively impact the GBP and limit its decline against other currencies. The markets have assigned nearly a 91% probability to a rate reduction at the meeting scheduled for February 6. Analysts from Capital Economics have expressed their belief that the Bank of England will lower interest rates from 4.75% to 4.50% at the February meeting and will continue to implement gradual cuts thereafter.