Pound Outshines Euro Amid US-EU Trade Deal Fears

Pound Gains Ground on Euro

On July 29, 2025, the British pound strengthened against the euro, with the EUR/GBP pair dropping to 0.8677, down 0.7% from its previous close of 0.8738. The pair fluctuated between a daily high of 0.8757 and a low of 0.8665, reflecting market jitters over a new US-EU trade agreement. While the pound also weakened against the US dollar, it outperformed the euro as investors reacted to fears that the trade deal leans heavily toward US interests, potentially weakening the European currency and economy. The pound’s resilience highlights shifting dynamics in currency markets.

US-EU Trade Deal Stirs Concerns

Finalized on July 27, 2025, the US-EU trade framework has eased some transatlantic tensions but sparked unease in Europe. The deal imposes a 15% minimum tariff on US imports from the EU, down from a proposed 30%, and reduces tariffs on European cars from 27.5% to 15%. It also exempts aircraft, their components, certain generic pharmaceuticals, chemicals, semiconductors, agricultural products, and raw materials from duties. However, the agreement’s $750 billion EU commitment to US energy purchases and $600 billion in US investments has fueled fears that it prioritizes American industries, prompting a sell-off in the euro and boosting the pound’s relative strength.

European Skepticism Fuels Euro Weakness

European leaders, particularly in France, have criticized the trade deal as favoring President Donald Trump’s “America First” agenda, potentially raising costs for EU exporters and consumers in sectors like automotive and electronics. European Commission President Ursula von der Leyen noted that decisions on sensitive sectors, such as electronic components, will be addressed separately, adding uncertainty. With final terms still under negotiation, markets worry about potential disruptions, weighing on the euro. The pound, less directly tied to the EU’s trade challenges, benefits as investors seek alternatives within European currencies.

Dollar Strength Pressures Both Currencies

The US dollar’s rally, driven by the trade deal and a robust US Dollar Index (DXY) at 98.64, has pressured both the pound and euro. However, the pound’s relative outperformance stems from the UK’s position outside the EU, insulating it from some trade-related concerns. The Federal Reserve’s expected decision to hold rates at 4.25%-4.50% on July 29-30, contrasted with the European Central Bank’s cautious stance, further supports the dollar’s dominance. Unresolved US trade talks with Canada and Mexico add a layer of global uncertainty, indirectly bolstering the pound’s appeal over the euro.

Outlook: Pound’s Edge May Persist

The EUR/GBP pair’s trajectory depends on the US-EU trade deal’s final terms and broader market signals. If uncertainties persist, particularly around sensitive EU sectors, the euro could slide further, potentially testing 0.8600. Upcoming US data, including GDP and jobs reports, alongside US-China trade talks by August 12, will influence currency markets. The pound’s current strength may continue if the UK avoids direct fallout from EU trade challenges, though a stronger dollar could cap gains. Investors are watching for clarity on trade terms and central bank signals to gauge the next move.