The EUR/GBP currency pair edged lower to 0.8445 in the early European session on Tuesday, retreating from a three-day winning streak as trade tensions between the European Union and the United States re-emerged. 

Heightened concerns surrounding new tariff threats, in particular, a potential doubling of US import duties on steel and aluminium, are weighing on the Euro, while the Pound Sterling finds strength from a more cautious Bank of England (BoE) policy stance. Vestronmix offers a guided exploration of the topic, led by its knowledgeable brokers.

Renewed US-EU Tariff Friction Pressures the Euro

This fresh downside in the EUR/GBP cross reflects investor jitters over trade relations between the European Union (EU) and the United States. On Monday, EU officials confirmed that they would prioritize negotiations this week to prevent an escalation of trade tensions following the US President’s announcement that tariffs on steel and aluminium imports could be doubled to 50%, effective from Wednesday. 

These proposed tariff hikes have reignited fears of a broader trade conflict, casting a shadow over the Eurozone’s already fragile economic recovery.

The market reaction has been swift. Traders have turned defensive on the Euro, leading to renewed pressure on the EUR/GBP cross, which dipped to as low as 0.8445, its lowest level since the start of the previous week. This decline was compounded by the lack of immediate progress in tariff discussions and the EU’s clear signaling that the resolution may take a gradual and strategic approach.

EUR in Focus Ahead of Eurozone HICP Data

The Euro’s weakness is also being fueled by the anticipation of key economic data later in the day. The preliminary release of the Harmonized Index of Consumer Prices (HICP) from the Eurozone is expected to offer fresh insight into the bloc’s inflation trajectory. 

Market participants are watching closely for signs of cooling inflation, which would bolster expectations of continued monetary easing from the European Central Bank (ECB).

The ECB is widely expected to cut its deposit rate by 25 basis points (bps) at its upcoming June meeting, bringing the rate down to 2.00%. This dovish monetary outlook stands in contrast to other major central banks and continues to weigh on the shared currency. 

In particular, comments from ECB President Christine Lagarde, scheduled for later on Tuesday, will be scrutinized for additional signals regarding the ECB’s policy direction.

Should Lagarde reiterate dovish sentimentsemphasizing the need for accommodative monetary policy in the face of stagnant growth and low inflation, this could accelerate EUR/GBP downside momentum and further erode investor confidence in the Euro.

BoE’s Steady-Handed Approach Lends Support to GBP

In contrast to the ECB’s dovish bias, the Bank of England (BoE) appears to be signaling a more measured and deliberate approach to monetary policy, which has provided the British Pound with additional support. The BoE is widely viewed as favoring a pause in its rate-cutting cycle, especially in light of persistent inflation in the UK and relatively robust economic indicators.

Futures market pricing shows that UK interest rates are expected to fall by only around 38 basis points by year-end. This projection implies one 25 bps rate cut, with a roughly 50% probability of a second, smaller reduction. 

Such expectations position the BoE as more hawkish than the ECB, enhancing the relative appeal of GBP-denominated assets and putting further pressure on EUR/GBP.

This monetary policy divergence is now a key driver for the currency pair. While the ECB leans toward stimulus amid concerns over growth and inflation softness, the BoE remains more conservative, reinforcing demand for the British Pound.

Technical Outlook: EUR/GBP Faces Downside Pressure

From a technical perspective, the EUR/GBP pair has breached immediate support near 0.8460, extending its decline toward the 0.8445 zone. If the pair fails to hold this level, additional bearish momentum could push it toward 0.8420, a level last seen in early May.

Momentum indicators, such as the Relative Strength Index (RSI) and MACD, also reflect growing bearish sentiment. The RSI has dipped below the 50 threshold, suggesting that sellers are gaining control, while the MACD histogram has turned negative for the first time in nearly a week. 

A sustained move below the 0.8440 handle could open the door for a retest of the key psychological 0.8400 level in the short term.

Conclusion: EUR/GBP Reflects Shifting Macro Narratives

The decline of EUR/GBP to 0.8445 encapsulates the current crosscurrents shaping global FX markets: escalating tariff tensions, diverging monetary policy paths, and uncertain economic data. As the Euro faces headwinds from trade anxieties and dovish ECB expectations, the British Pound gains on a firmer BoE stance and relative economic stability.

In the near term, the balance of risks appears tilted toward further EUR/GBP weakness unless the EU can achieve a breakthrough in its negotiations with Washington or deliver stronger-than-expected economic data. Traders should remain vigilant, as volatility around central bank communications and trade headlines will likely continue to dominate the narrative for this key currency pair.