Pound-to-Euro Forecast: Sterling Gains, EUR Bearish on US-China Tariff Hopes

Modified: Monday, 12 May 2025 14:24 BST - Written by Frank Davies

STORY LINK Pound-to-Euro Forecast: Sterling Gains, EUR Bearish on US-China Tariff Hopes

The Pound-to-Euro exchange rate (GBP/EUR) has risen by around a third of a per cent on Monday after risk appetite strengthened further. Sterling's rise came on the back of a fresh wave of optimism surrounding the global economy following an announcement that US-China trade tariffs would be reduced sharply for an interim period.

US equity futures surged as risk conditions improved while the FTSE 100 index posted 6-week highs.

Risk appetite strengthened which underpinned the Pound while the Euro retreated amid a dip in demand for defensive assets.

In this environment, the Pound to Euro (GBP/EUR) exchange rate jumped further to 5-week highs around 1.1875 before settling close to 1.1855.

According to ING; “Positioning imbalances, improved risk sentiment, and the upcoming EU-UK summit on 19 May may well keep EUR/GBP pressure, with a break below 0.840 now appearing increasingly likely.”

This would push GBP/EUR above the 1.1900 level.

Domestically, GDP and labour-market data will be released this week and could change the wider narrative.

According to Goldman Sachs; “Sterling is significantly overvalued on a trade-weighted basis on our longer-term valuation metrics, and the fiscal backdrop remains challenging. Key UK data on growth and the labour market will help set Sterling direction in the near term.”

In a press conference around the European open, US Treasury Secretary Bessent stated that there was an agreement to lower tariffs by 115% for a 90-day period starting on May 14th.

The US tariffs on Chinese imports will be cut to 30% from 145% while the tariffs on US exports to China will be lowered to 10% from 125% for 90 days.

According to JP Morgan; "The magnitude of this tariff reduction is larger than expected. This reflects both sides recognising the economic reality that tariffs will hit global growth and negotiation is a better option going forward.”

Domestic elements will also be important for the Pound.

MUFG commented; “For the BoE to speed up rate cuts it would need to have more confidence that the trade disruption will be disinflationary for the UK economy. A reduction in US-China trade tensions would lessen the risk of deflation.

The bank added; “The UK-US trade deal has helped to ease some of the downside risks to growth in the UK.”

Domestically, however, there has been further evidence of a weaker labour market.

The Chartered Institute of Personnel and Development (CIPD) reported that its gauge of employment intentions for the next three months fell in the latest quarter from +13 to +8 - a record low, excluding the COVID-19 pandemic.

James Cockett, senior labour market economist at the CIPD commented; "Employer confidence is low which is being reflected in their hiring plans."

A separate survey from accountants KPMG and the Recruitment and Employment Confederation showed another drop in job placements by recruiters last month while overall demand for staff contracted at a faster pace.

KPMG group chief executive Jon Holt noted that the number of job seekers also continued to rise.

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TAGS: Pound Euro Forecasts