- EUR/GBP may strengthen following Germany’s agreement on a debt overhaul and a substantial increase in state spending.
- ECB Vice President Guindos noted that President Trump’s policies are contributing to greater economic uncertainty than the COVID-19 crisis.
- The Bank of England is widely expected to maintain its interest rate at 4.5% in its policy decision on Thursday.
EUR/GBP remains stable around 0.8410 during early European trading hours on Monday, following gains in the previous session. The cross’s upside potential is bolstered by support for the Euro (EUR) after Germany reached a deal on debt reform and a substantial increase in state spending.
On Friday, incoming Chancellor Friedrich Merz secured an agreement with the Green and Social Democrat parties ahead of a crucial parliamentary vote on Tuesday to revise borrowing rules. If the proposal secures a two-thirds majority, the expanded spending plan could significantly boost the EUR/GBP cross.
Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos voiced concerns on Sunday, stating that President Trump’s policies are creating greater economic uncertainty than the COVID-19 crisis, according to Bloomberg. Guindos noted that the new US administration appears less inclined toward multilateralism, which fosters international cooperation—an approach shift that he described as a major source of instability.
Additionally, ECB Governing Council member and Banque de France Governor François Villeroy de Galhau emphasized the need for the Euro to strengthen its global influence. In an interview with *La Tribune Dimanche* over the weekend, he called for the establishment of a “powerful savings and investment union” to attract international investors to the Euro.
The EUR/GBP cross is benefiting from a weaker Pound Sterling (GBP) following Friday’s disappointing UK Gross Domestic Product (GDP) report. The data showed an unexpected 0.1% month-over-month contraction in January, falling short of market expectations for a 0.1% expansion. This decline was primarily driven by weakness in the production sector.
Last month, the Bank of England (BoE) lowered its first-quarter growth forecast to 0.1%, down from the 0.4% projection in November. Investors are now focused on the BoE’s monetary policy decision on Thursday, where interest rates are expected to remain unchanged at 4.5%.
