The Euro is losing value against the British Pound, marking a decline that has lasted two days. This drop is largely due to criticism of the recent US-EU trade agreement, which many consider to favor the US. As of Tuesday, the EUR/GBP exchange rate is about 0.8656, down nearly 0.20%, following a significant drop on Monday. Before this decline, the rate peaked at 0.8753, its highest since November 2023.

Criticism of the US-EU Trade Agreement

The trade agreement, signed by US President Trump and European Commission President von der Leyen, has faced backlash for being unbalanced. The US gained major concessions, while the EU now faces a flat 15% tariff on many exports, up from an average of only 1.2%. Only a few EU exports are exempt from tariffs through a “zero-for-zero” clause, while US goods enter Europe tariff-free. Additionally, tariffs on EU steel and aluminum exports to the US remain at 50%. Recently, President Trump and UK Prime Minister Starmer discussed trade relations, particularly about tariff reforms. Trump expressed a willingness to reduce tariffs on UK pharmaceuticals, though talks on industrial goods are ongoing.

Eurozone Economic Outlook

The Eurozone’s economic agenda will soon feature a preliminary GDP estimate and several sentiment indicators. These figures could influence the Euro’s short-term movements, especially amid the trade agreement issues. Given the current situation, we expect the Euro to keep falling against the British Pound. The new trade agreement has significantly hurt the Eurozone’s export prospects, creating a strong headwind. This suggests the recent drop in the EUR/GBP pair is not just a temporary setback but may lead to a new lower trend. We anticipate a break below the important 0.8600 support level in the coming weeks. The latest German ZEW Economic Sentiment for July has already shown this negativity, dropping to -5.2 when a positive figure was expected, clearly reacting to the trade news. Historical data from late 2023 indicates that as momentum builds, a decline toward the 0.8500 mark is very likely. Given this outlook, buying put options on EUR/GBP is a low-risk way to profit from further declines. Over the past week, three-month implied volatility for the pair has risen from around 5% to over 8%, showing that the market is preparing for notable price changes. This situation makes options an appealing choice for traders expecting a continued downturn. The United Kingdom is in a relatively strong negotiating position, highlighted by the recent talks between Starmer and his US counterparty. With UK inflation steady at 2.9% and the Bank of England’s key rate at 4.75%, monetary policy is tighter than in the Eurozone. This difference in interest rates favors the Pound. This week’s preliminary Q2 GDP estimate for the Eurozone will be a crucial test for the market’s bearish sentiment. After von der Leyen’s deal, a growth figure below the 0.2% consensus forecast would confirm economic challenges. A significant shortfall here would likely speed up the pair’s decline. Create your live VT Markets account and start trading now.

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