Pound-to-Euro Rate at 5-Week Best on US-UK Trade Deal

May 8, 2025 - Written by Frank Davies

STORY LINK Pound-to-Euro Rate at 5-Week Best on US-UK Trade Deal

The Pound to Euro exchange rate strengthened after the Bank of England policy decision amid a split vote and relatively hawkish guidance.

The UK-US trade deal increased confidence that the UK could fare better than the EU on the trade front and the Pound-Euro conversion (GBP/EUR) tested hit 5-week highs just above 1.1815 as the Euro lost ground.

According to ING; “A less dovish than expected BoE can only help this political support for the pound, and 0.8400 looks the EUR/GBP bias for this month. (1.19 for GBP/EUR).

The dollar gained some net support from hopes that the US would take a more concessionary stance towards trade tariffs, lessening the risk premium on the US currency and boosting Wall Street.

In this environment, the Pound to Dollar (GBP/USD) exchange rate hit highs above 1.3350 before dipping back below 1.3300 amid dollar gains.

As far as the UK-US trade deal is concerned, the overall 10% tariff on imports into the US will stay in place.

The tariffs on car imports will be lowered to 10% with an annual quota of 100,000.


According to the US, there will be an aluminium and steel trading zone with zero tariffs.

There will also be some tariff-free imports for aerospace components.

In return, the US will see lower tariffs on US agricultural products, machinery and chemicals.

Earlier, the Bank of England (BoE) Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 4.25%, in line with consensus forecasts.

There was a 5-4 split with Taylor and Dhingra backing a 50 basis-point move while Mann and Pill wanted no change in rates.

The BoE maintained the stance that it would take a cautious and careful stance towards interest rate cuts.

According to Matthew Ryan, head of market strategy at global financial services firm Ebury, the pound has received a modest leg up following the announcement, as markets dial back bets in favour of lower UK rates.


He added; “This cautious approach should, we believe, act to keep sterling well bid, particularly given Britain’s relative isolation from the growth risks posed by US protectionism.”

Sanjay Raja, chief UK economist at Deutsche Bank, discussed the vote split; “Put another way, we now have two members who may be thinking that policy could be sufficiently restrictive at these levels. Also it’s worth noting that prior to global trade news, most of the five voters for a quarter point rate cut were debating no change in Bank Rate. Put simply, this is still a very cautious if indeed split MPC.”

ING commented; “Our base case is that the Bank keeps cutting rates once per quarter, though we wouldn't rule out a quicker pace of cuts if we're right that services inflation falls faster than the BoE currently expects.”

According to Berenberg Senior Uk Economist Andrew Wishart; "The vote split was obviously more hawkish than expected with two members voting to keep on hold, I think, worried by how aggressive the rate cuts priced in by the market had become and also signs that core inflation is going to remain elevated as companies pass through quite a lot of the cost increases from the wage and tax increases in April."

He added; "They will probably be on hold again in June and then reassess when we get to the August meeting."

Schroders Senior Economist George Brown sees very limited scope for further rate cuts; "Today’s decision came as no surprise to anyone. But going forward, the Bank of England has far less scope to cut rates than the market currently expects."

According to Brown; "The fundamental issue for the UK is that it continues to face considerable capacity constraints. As such, inflation looks set to rise again later this year as a result of disappointing productivity and sticky wage growth."

He added; "To our minds, this is consistent with the Bank only taking interest rates as low as around 4% this rate-cutting cycle."

Looking at wider trade trends, ING commented on the potential for closer UK/EU ties; “Helping that move over the next couple of weeks should be the run-up to the first UK-EU summit on 19 May. Here, leaders should sign a new Security and Defence Pact (SDP) and talk warmly about future deals regarding alignment on carbon trading and youth mobility.”

It added; “Typically, sterling performs better on warmer UK-EU relations, which in this case could involve the Office for Budget Responsibility (OBR) scoring UK growth prospects higher this November – providing more fiscal headroom for UK Chancellor Rachel Reeves.”

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TAGS: Pound Euro Forecasts