- EUR/GBP drifts higher to near 0.8610 in Friday’s early European session.
- Investors brace for Friday’s meeting between Trump and Putin for fresh direction.
- UK economy slowed less than expected in Q2, rising 0.3% QoQ.
The EUR/GBP cross gains traction to around 0.8610 during the early European session on Friday. The Euro (EUR) strengthens against the Pound Sterling (GBP) amid hopes that Russia will end the war in Ukraine. Traders will closely watch the developments surrounding the meeting between US President Donald Trump and Russian leader Vladimir Putin later on Friday.
Trump and Putin are set to meet later in the day in Alaska to discuss the Ukraine issue. Trump said on Thursday that he believes Putin is ready to end his war in Ukraine, but peace would likely require at least a second meeting involving Ukraine’s President Volodymyr Zelenskyy. Peace hopes imply lower energy costs and reduced geopolitical uncertainty in the Eurozone, which generally provides some support to the shared currency.
On the other hand, the UK economy slowed less than expected in the second quarter this year despite the shock of US trade tariffs and a weaker jobs market. This, in turn, could boost the GBP and cap the upside for the cross. The Office for National Statistics (ONS) showed on Thursday that the UK Gross Domestic Product (GDP) grew 0.3% QoQ in Q2 versus a 0.7% growth in Q1. This figure came in better than the expectation of a 0.1% expansion in the reported period.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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