- Pound (GBP) is falling after gains yesterday
- Fiscal worries could keep the pound under pressure
- Euro (EUR) is rising despite weaker German export data
- EU – US trade talks continue ahead of the deadline
The Pound-Euro (GBP/EUR) exchange rate is falling, giving back yesterday’s gains. The pair rose 0.16% in the previous session, settling on Monday at €1.1607. It traded between €1.1569 and €1.1632. At 17:30, GBP/EUR trades -0.2% at €1.1594.
The pound is falling on Tuesday, giving back modest gains from the previous session amid a quiet day on the economic calendar.
The pound is struggling to push higher amid ongoing concerns surrounding the UK fiscal outlook. The underlying fiscal outlook has deteriorated even since last week when the government performed a U-turn on welfare benefits, which will result in increased spending. This higher spending, combined with the weaker growth outlook, has wiped out Chancellor Rahel Reeve’s headroom, meaning that tax hikes could be coming in the Autumn Budget.
Tax cuts put the brakes on growth at a time when the UK economy is only expected to see modest growth. Under these circumstances, the BoE may need to cut rates more aggressively.
The euro is pushing higher after German trade data showed an increase in surplus in May. The latest data from the eurozone’s largest economy showed that German exports fell by 1.4% and imports dropped by 3.8% compared to April. As a result, the foreign trade balance recorded a surplus of €18.4 billion in May 2025, exceeding estimates of €15.5 billion but falling short of the € 22.3 billion recorded in May 2024.
Delving deeper into the data, the figures showed a significant decline in shipments to the US after tariff front loading boosted months’ exports to rise 1.8% in February 1.3% in March.
Despite seafood, the US remains the most important destination for German products, and the EU continues to negotiate a trade deal with the US. The two sides will look for a quick framework deal with further negotiations expected to take place over the summer.
The EU wasn’t included in Trump’s latest announcement of trade tariffs, possibly a reflection of progress in the talks.